45 Comments

Open it up :)

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yup send it out!

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Bernard the audio from the exchange with the Reserve Bank is missing from the podcast

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May 5, 2023Liked by Bernard Hickey

@Bernard, please add the missing interview recording before opening up to non-payign subscribers

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author

My fault. I will do that. Many thanks for the heads up.

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My fault. I will do that. Many thanks for the heads up.

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Yes please to opening up. More people should know that the banking sector doesn't need an inquiry of any kind into its profits or practices, and New Zealanders getting smashed by the interest rate rises that (mysteriously) don't appear to have done a damn thing about inflation will be reassured to hear from their beloved bank CEOs.

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May 4, 2023Liked by Bernard Hickey

yes, open

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May 4, 2023Liked by Bernard Hickey

The ugly truth is without genuine competition and a strong competition regulator nothing will change.

Market study will take too long and won’t be done pre election.

No labour govt on a bread and butter binge will give Kiwibank the $bns it needs to be a viable competitor so just sell it in its entirety/let it merge/takeover heartland and have 5 large well capitalised competitors have meaningful scraps

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author

Interesting idea. Trouble is the big four will be the ones offering the highest price. They've done it before with Post Bank. Bought by ANZ.

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No competent competition regulator will allow Kiwibank/heartland to be bought by one of the big 4.

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May 4, 2023Liked by Bernard Hickey

Open up

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May 4, 2023Liked by Bernard Hickey

Open it!

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May 4, 2023Liked by Bernard Hickey

Yes the audio from the Reserve Bank exchanges are missing from the podcast audio unfortunately! Those that are interested can find the stand-up on the RBNZ’s YouTube channel though

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author

My fault. I will do that. Many thanks for the heads up.

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May 4, 2023Liked by Bernard Hickey

I agree totally with Bernard the banks make too much, but think a market study won't turn up a mechanism to stop that. Kiwibank has tried to do that with a Govt guarantee and unlike 2degrees in the telecoms market, has been unable to change things: it's not a successful bank either.

I think the high profits are a behavioural result because the big four have CEOs from the mother ship, and their profitability/maintenance of it is a marker for further personal success, possibly the top Aussie job and certainly bonuses. Over the 90s when banks could really start using the internet and existing IT to shed staff and other costs, they did not share the gains with customers in a battle to gain more, but kept a lot for themselves and established the current benchmark expectation in Australian head offices for NZ return on equity. No CEO coming here will have an instruction to let that drop by, for example, trying to get markedly bigger in this oligopoly market. It costs a lot to gain share at the margin, it kills profit and the gain is temporary as the others come back at you. Our banking is a simple business in those terms, albeit complex in IT and risk management, which they do extremely well compared to those comparators in other countries.

So I believe a study could at least show how futile it would be for one of four banks to crash its ROE to 8%, say, trying to gain 5% more market share from the others, only for them to fight back and succeed in retaining their share. The CEOs are rational, many have worked in the other banks and they all know each other. I am not suggesting they talk and price fix at all, just that they are in a sense 'trapped' (very comfortably) in the current paradigm. The way to beat this will have to be delivered my some sort of 'edict' from outside I think, because a rational market won't/can't.

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Competition between New Zealand telecom companies only really took off once phone number portability was made standard across NZ.

In the same way bank account number portability like phone number portability would greatly aide in customers switching banks & further enabling competition, as Massey University banking expert associate professor Claire Matthews suggested.

Banking expert: Why NZ’s banks are so profitable | Q+A 2023

https://www.youtube.com/watch?v=nk0vh5I9oJQ

However an inquiry needs to be done into the cost per transaction using new server technology & resulting charges to retailers & customers.

We really need more transparency of the costs of operation to the public to make sure that the "artificial" market prices for banking services does not excessively exceed the actual cost of providing the service or product.

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May 5, 2023Liked by Bernard Hickey

+1 for portability (then I could leave Westpac and it's crooked $7/month business account, and shift to ASB at $0/month for the exact same service...)

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author

That is an interesting trend Tim. Some banks are removing their account fees.

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author

Great points on portability and transparency on costs David. Thankyou.

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May 4, 2023Liked by Bernard Hickey

yup open it up spread it far and wide

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May 4, 2023Liked by Bernard Hickey

What avenues or mechanisms does govt or RBNZ have to lower these huge profit margins?

Also what about the smaller banks are their profit ratios as high?

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May 4, 2023Liked by Bernard Hickey

Probably nothing but the government could have a windfall tax to redistribute the Big 4's profit gouging to the wider NZ public purse. Of they could reinvest that windfall tax in Kiwibank OR start up a Government owned supermarket (yes dreams are free)

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author

Reserve Bank could start by not giving subsidised loans or paying interest on settlement accounts.

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May 4, 2023Liked by Bernard Hickey

Is the takeaway here that banks should be less profitable, or that they should take on more risk?

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author

Excellent question. More risk would simply mean bigger home loans and higher house prices. I'd prefer a ratching up of capital levels all the way to 100% over a long period. IE removal of all leverage from land prices.

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May 4, 2023Liked by Bernard Hickey

"The biggest banks are also continually bearing down on costs by removing branches and going digital". This amounts to reducing service to their customers. Close to home anecdote: family trust buying business (employing several) and it is settlement date. By mid afternoon the bank employee (one of the big four) has not even read the emails essential to completing the deadline. Consequently, to avoid defaulting on the deal, urgent scramble to find the money from another family member, but still entails penalties of several thousand dollars. Gross incompetence on the part of one of these large, profitable banks, continually reducing the quality of service to (not insignificant) customers. And how about the little old ladies (not me!) who live in small bank-less towns and are not computer literate?

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May 4, 2023Liked by Bernard Hickey

Perhaps they should change their names to “Building Societies” as this would more accurately reflect their NZ operations?

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author

Ha! Indeed

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Time to restart State Advances offering low rate (3%?) long term mortgages.

This would shift the emphasis for housing finance from short term speculation to long term support for a place to live at, undermining the corporate banking model.

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May 4, 2023Liked by Bernard Hickey

Good idea. Also, maybe require the banks to invest a % of their profits into social housing for those whom home ownership is not attainable. There appears to be plenty of wealth in the system to redistribute.

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author

It depends how that is controlled. Widespread 3% loans on existing homes would dramatically lift prices.

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