Govt orders market study into retail banking only; business banking carved out; initial issues paper due in August, but final report due Sept 2024; Draft open banking bill due later this week
So the last enquiry (supermarkets) concluded there was a severe structural problem then our Commissioners decided we did not need a structural solution. The continued failures to regulate competition are crushing productivity growth. The eventual outcome of this failure to "grow some" is that we will become a State of Australia. At least banking will be cheaper!!!!!!
Bernard; Supermarkets are a cost plus margin business. If the price of a product or range of products decreases due to supply increases; the retail margin is applied to the lower price. Retail prices hence decrease. The supermarket industry does not and cannot hold up the price of a product to improve its profit margins. We are not Canute!!🥴
Sure but I’m guessing the margins in NZ are bigger than the UK for example where there is so much more competition . One example (of many) from where I live : a box of cherry tomatoes bought from the same producer, local veg shop $4.99, Pak n Save $9. Yet who would be getting the best wholesale price?
Sally; The supermarket buyers are ordering from the bigger producers contracting for a minimum quantity daily and paying the wholesale market rate(frequently plus a quality margin) That producer sells his excess daily production on the wholesale market at the going rate for excess production. This is frequently much lower leading to your local greengrocer having super deals at retail. When there is a wholesale shortage the supermarket buyers take precedence and have stock at a high price. The greengrocers have little stock . Excess stock may be donated to the food parcel suppliers.
As per their name, it is essential that supermarkets have the complete range of stock to offer their customers. The fresh vegetable suppliers that claim they are offered little for their excess production are offering product to supermarkets that already have supply contracts with other vegetable producers. Naturally when offered excess the only factor taken into account is price.
Had to read this twice to get it, but I do see what you're saying. I did think the Foodstuffs model meant they more consistently bought of local suppliers rather than just 'bigger producers' - but perhaps that just means local produce vs from each producer. The cherry tom's were not a one off though (just one I could remember the price for), it's across the board, all the time, on everything. A rare day that the store is out of stock on anything, but appreciate he is not supplying the populations the supermarkets are.
You avoided the margin question though - I've only got google to go on and ex-Unilever experience (ASDA years, but pre the German retailers entry) but average UK margins are around 3% . Media reports NZ supermarkets at significantly higher rates no?
It would be good to add in insurance too, our insurance w Tower has gone up 123% (from $2500 to $4700) and Tower hasn't been able to explain why. So obvs we are going to shop around.
what is also interesting with insurance premiums is that my annual premium on a brand new home with no natural hazard risk is 0.5% of the replacement cost which in reality is indicating that the insurers see that as a roughly 1:200 risk of the house being written off in any one year - when the odds are likely to be closer to 1:10,000 - another good argument for socialising insurance - we are already paying enough to cover the cost of retreat from floodways and coastal inundation along with the usual events such as fire - we just need to remove the middlemen.
"...and as the lion-tamer slipped out of consciousness for the final time, he thought to himself, "I wonder if all those years of hand-feeding her raw meat was a mistake..." And the lioness mindlessly took another large bite out of the lion-tamer's thigh and slowly chewed..."
Why is business banking out do you think Bernard? I know Robertson was looking at ways access to finance can be improved for SMEs but no idea where that landed. Anecdotally it seems to be very contingent on having something to borrow against like a house. Also you’re on holiday so feel free to ignore this until you’re next around the place.
Yes. Applying for a business loan at the moment. Not just a house, one with spare equity in it. Banks will mortgage up to 80% value (ie mortgage and business loan together no more than 80% house value).
Thanks Anna. He said in the stand-up it might take ‘five years’ to do a study that included small business banking. I’m keen to see the cabinet paper… Seems a bit off to me.
Is there any sense to the notion that these market studies may even be worse for consumers in the medium term? Surely they at least give the industry an excuse to raise profits to hedge against 'the potential for increasing costs to regulatory compliance', or some other nonsense
That quote from NZBA CEO Roger Beaumont is eye popping.
"Last year banks made a net profit of $7.18 billion. They also spent $9.1 billion running their businesses and paying tax here. That’s a net positive contribution of $1.92 billion"
It’s worse that that if their costs and tax amounted to $9.1m but they made a profit on top of costs of $7.2m then they earned $16.3m revenue, so contribution much higher than $1.92m. Maybe a more interesting figure is how much they paid in dividends to offshore shareholders? So the charge sheet is:
1) Overcharging NZ customers.
2) Not supporting NZ businesses.
3) Actively supporting an overvalued housing market.
4) Sending money offshore.
I am sure Diddy David will be insisting on increased sentencing for bankers found guilty of other crimes?
I just realised that can be interpreted either way.
I dislike the big 4 banks in NZ overcharging NZ customers, and not supporting NZ businesses, and actively supporting an overvalued housing market, andsending money offshore.
The real issue with the banks is the enormous growth in the size of the mortgages that has come about as a result of rampant house & land inflation over the past 30 years. This has been marketed to us as increased value, yet our houses and land don’t get bigger or improve in quality as prices rise. No other business, except perhaps real estate agents, can grow their market and profits via inflated prices.
It is this uncontrolled inflating of house and land prices that has made the bank rich and that underpins inequality and the poverty we now see. Just imagine if land & house prices had been contained to say half the inflation actually experienced. Our rents and mortgages would be half what they are now, while our wages would be as they are now. How well off we would all be. There would be no poverty, no cost of living crises and vastly reduced inequality.
Until we get our heads around the increases in prices are inflation not value, we will continue to suffer, while the banks get richer. Price measures efficiency in providing goods not value. Value is the benefit we receive from goods, a warm dry place to stay. This cannot be measured in dollars.
The problem is people are financing their lifestyle and consumption by borrowing against these inflated values, rather than through improved productivity. We see a never ending focus on government debt, which should be at least partially linked to infrastructure but a total silence on private debt levels used to purchase non- productive assets and consumption.
absolutely bang on. The root cause of house price inflation is that banks create new money, and control where in the economy the new money goes. Unfortunately, but not surprisingly, most money is injected into housing because it’s most profitable for banks, rather than into the productive sector where it is most beneficial for society.
Yes, the real answer to the cost of living crisis is to reduce the cost of living by reducing interest and housing costs, rather than ramping up wages, which feeds the inflationary beast and just makes New Zealand less internationally competitive.
The real issue with the banks is the enormous growth in the size of the mortgages that has come about as a result of rampant house & land inflation over the past 30 years. This has been marketed to us as increased value, yet our houses and land don’t get bigger or improve in quality as prices rise. No other business, except perhaps real estate agents, can grow their market and profits via inflated prices.
It is this uncontrolled inflating of house and land prices that has made the bank rich and that underpins inequality and the poverty we now see. Just imagine if land & house prices had been contained to say half the inflation actually experienced. Our rents and mortgages would be half what they are now, while our wages would be as they are now. How well off we would all be. There would be no poverty, no cost of living crises and vastly reduced inequality.
Until we get our heads around the increases in prices are inflation not value, we will continue to suffer, while the banks get richer. Price measures efficiency in providing goods not value. Value is the benefit we receive from goods, a warm dry place to stay. This cannot be measured in dollars.
FYI I have corrected and apologised with the following: “ I have deleted the reference to the gazetted statement not including the word profitability. There was a paragraph at the end which referred to profitability, but appeared to me to be in the context only of new products and services, as opposed to banking as a whole. “Any impediments to new or innovative banking products or services comparative indicators of bank financial performance (including prof-itability).” It looks to me like a dropped bullet point. I apologise to readers and to Duncan Webb for my error. However, the exclusion of business banking from the study means it will be impossible for the study to properly measure or compare NZ bank profitability with overseas peers, who report profitability overall, including business banking. ”
Also, FYI, the Commerce Commission has also said: “Potential areas of focus for the study are current accounts, deposit accounts, and overdraft account services, personal loans, and mortgage and credit card lending. There will be less of a focus on financial services such as KiwiSaver, wealth management, insurance, and foreign exchange. Dr Small says the proposed terms of reference for the Commission’s study have been drafted flexibly to allow consideration of further products and services as appropriate, such as broad, cross-portfolio assessments of banks’ financial performance. While the study is firmly focused on the process of competition, it will also consider some outcomes of that process, including bank profits. Dr Small says there are plenty of profit indicators already available and that, in this part of the study, the Commission will focus on assessing them and potential interpretations of them. While the study is firmly focused on the process of competition, it will also consider some outcomes of that process, including bank profits. Dr Small says there are plenty of profit indicators already available and that, in this part of the study, the Commission will focus on assessing them and potential interpretations of them.” I read this to mean the Commission will try to rebuild proper comparisons that account for the exclusion of business banking. That will be difficult, and will inevitably lead to disputation by the banks on the basis of ‘apples vs pears’
This banking study is like ram-raiding a dairy then investigating for littering. Scope misses the main point: banks create and allocate the money supply, with huge “ram”-ifications.
So the last enquiry (supermarkets) concluded there was a severe structural problem then our Commissioners decided we did not need a structural solution. The continued failures to regulate competition are crushing productivity growth. The eventual outcome of this failure to "grow some" is that we will become a State of Australia. At least banking will be cheaper!!!!!!
It’s frustrating, isn’t it?
But is failure the correct word? Isn’t it refusal? It’s not as if they tried and failed. They didn’t even try.
Pretty much
Bernard; Supermarkets are a cost plus margin business. If the price of a product or range of products decreases due to supply increases; the retail margin is applied to the lower price. Retail prices hence decrease. The supermarket industry does not and cannot hold up the price of a product to improve its profit margins. We are not Canute!!🥴
Sure but I’m guessing the margins in NZ are bigger than the UK for example where there is so much more competition . One example (of many) from where I live : a box of cherry tomatoes bought from the same producer, local veg shop $4.99, Pak n Save $9. Yet who would be getting the best wholesale price?
Sally; The supermarket buyers are ordering from the bigger producers contracting for a minimum quantity daily and paying the wholesale market rate(frequently plus a quality margin) That producer sells his excess daily production on the wholesale market at the going rate for excess production. This is frequently much lower leading to your local greengrocer having super deals at retail. When there is a wholesale shortage the supermarket buyers take precedence and have stock at a high price. The greengrocers have little stock . Excess stock may be donated to the food parcel suppliers.
As per their name, it is essential that supermarkets have the complete range of stock to offer their customers. The fresh vegetable suppliers that claim they are offered little for their excess production are offering product to supermarkets that already have supply contracts with other vegetable producers. Naturally when offered excess the only factor taken into account is price.
Had to read this twice to get it, but I do see what you're saying. I did think the Foodstuffs model meant they more consistently bought of local suppliers rather than just 'bigger producers' - but perhaps that just means local produce vs from each producer. The cherry tom's were not a one off though (just one I could remember the price for), it's across the board, all the time, on everything. A rare day that the store is out of stock on anything, but appreciate he is not supplying the populations the supermarkets are.
You avoided the margin question though - I've only got google to go on and ex-Unilever experience (ASDA years, but pre the German retailers entry) but average UK margins are around 3% . Media reports NZ supermarkets at significantly higher rates no?
Interesting. Thanks for this, it leads to better understanding on how the model works.
Great Murray. Let’s see if prices drop, as they are currently in the US. And let’s see if our internationally priced food also drops…
It would be good to add in insurance too, our insurance w Tower has gone up 123% (from $2500 to $4700) and Tower hasn't been able to explain why. So obvs we are going to shop around.
what is also interesting with insurance premiums is that my annual premium on a brand new home with no natural hazard risk is 0.5% of the replacement cost which in reality is indicating that the insurers see that as a roughly 1:200 risk of the house being written off in any one year - when the odds are likely to be closer to 1:10,000 - another good argument for socialising insurance - we are already paying enough to cover the cost of retreat from floodways and coastal inundation along with the usual events such as fire - we just need to remove the middlemen.
Interesting. This is the final bullet point of the gazetted Terms of Reference:
“Any impediments to new or innovative banking products or services comparative indicators of bank financial performance (including profitability)”.
Is that sentence meant to be split in two and if so is that the missing piece on profitability you rightly point out?
Thanks Lara. I read that as services that measure bank profitability, rather than bank profitability itself.
"...and as the lion-tamer slipped out of consciousness for the final time, he thought to himself, "I wonder if all those years of hand-feeding her raw meat was a mistake..." And the lioness mindlessly took another large bite out of the lion-tamer's thigh and slowly chewed..."
Why is business banking out do you think Bernard? I know Robertson was looking at ways access to finance can be improved for SMEs but no idea where that landed. Anecdotally it seems to be very contingent on having something to borrow against like a house. Also you’re on holiday so feel free to ignore this until you’re next around the place.
Yes. Applying for a business loan at the moment. Not just a house, one with spare equity in it. Banks will mortgage up to 80% value (ie mortgage and business loan together no more than 80% house value).
Thanks Anna. He said in the stand-up it might take ‘five years’ to do a study that included small business banking. I’m keen to see the cabinet paper… Seems a bit off to me.
Is there any sense to the notion that these market studies may even be worse for consumers in the medium term? Surely they at least give the industry an excuse to raise profits to hedge against 'the potential for increasing costs to regulatory compliance', or some other nonsense
Thanks Ollie. Hadn’t thought of that. Unintended consequences? Interesting.
With a European, US background I have to laugh out loud when I hear the NZ whining about compliance.
the banking system in NZ must be altered/changed.
the NZ government must be the only body/entity that can expand/increase NZ's money supply,
and then loan to the banks and other institutions as necessary. the flow of capital/money into and out of NZ would need to be thoroughly controlled.
and the profits the 4 main banks are making in NZ are grossly EXCESSIVE!!!
That quote from NZBA CEO Roger Beaumont is eye popping.
"Last year banks made a net profit of $7.18 billion. They also spent $9.1 billion running their businesses and paying tax here. That’s a net positive contribution of $1.92 billion"
What an incredible return!
It’s worse that that if their costs and tax amounted to $9.1m but they made a profit on top of costs of $7.2m then they earned $16.3m revenue, so contribution much higher than $1.92m. Maybe a more interesting figure is how much they paid in dividends to offshore shareholders? So the charge sheet is:
1) Overcharging NZ customers.
2) Not supporting NZ businesses.
3) Actively supporting an overvalued housing market.
4) Sending money offshore.
I am sure Diddy David will be insisting on increased sentencing for bankers found guilty of other crimes?
I like your 4 charge sheet items.
I just realised that can be interpreted either way.
I dislike the big 4 banks in NZ overcharging NZ customers, and not supporting NZ businesses, and actively supporting an overvalued housing market, andsending money offshore.
The real issue with the banks is the enormous growth in the size of the mortgages that has come about as a result of rampant house & land inflation over the past 30 years. This has been marketed to us as increased value, yet our houses and land don’t get bigger or improve in quality as prices rise. No other business, except perhaps real estate agents, can grow their market and profits via inflated prices.
It is this uncontrolled inflating of house and land prices that has made the bank rich and that underpins inequality and the poverty we now see. Just imagine if land & house prices had been contained to say half the inflation actually experienced. Our rents and mortgages would be half what they are now, while our wages would be as they are now. How well off we would all be. There would be no poverty, no cost of living crises and vastly reduced inequality.
Until we get our heads around the increases in prices are inflation not value, we will continue to suffer, while the banks get richer. Price measures efficiency in providing goods not value. Value is the benefit we receive from goods, a warm dry place to stay. This cannot be measured in dollars.
The problem is people are financing their lifestyle and consumption by borrowing against these inflated values, rather than through improved productivity. We see a never ending focus on government debt, which should be at least partially linked to infrastructure but a total silence on private debt levels used to purchase non- productive assets and consumption.
absolutely bang on. The root cause of house price inflation is that banks create new money, and control where in the economy the new money goes. Unfortunately, but not surprisingly, most money is injected into housing because it’s most profitable for banks, rather than into the productive sector where it is most beneficial for society.
Yes, the real answer to the cost of living crisis is to reduce the cost of living by reducing interest and housing costs, rather than ramping up wages, which feeds the inflationary beast and just makes New Zealand less internationally competitive.
The real issue with the banks is the enormous growth in the size of the mortgages that has come about as a result of rampant house & land inflation over the past 30 years. This has been marketed to us as increased value, yet our houses and land don’t get bigger or improve in quality as prices rise. No other business, except perhaps real estate agents, can grow their market and profits via inflated prices.
It is this uncontrolled inflating of house and land prices that has made the bank rich and that underpins inequality and the poverty we now see. Just imagine if land & house prices had been contained to say half the inflation actually experienced. Our rents and mortgages would be half what they are now, while our wages would be as they are now. How well off we would all be. There would be no poverty, no cost of living crises and vastly reduced inequality.
Until we get our heads around the increases in prices are inflation not value, we will continue to suffer, while the banks get richer. Price measures efficiency in providing goods not value. Value is the benefit we receive from goods, a warm dry place to stay. This cannot be measured in dollars.
FYI I have corrected and apologised with the following: “ I have deleted the reference to the gazetted statement not including the word profitability. There was a paragraph at the end which referred to profitability, but appeared to me to be in the context only of new products and services, as opposed to banking as a whole. “Any impediments to new or innovative banking products or services comparative indicators of bank financial performance (including prof-itability).” It looks to me like a dropped bullet point. I apologise to readers and to Duncan Webb for my error. However, the exclusion of business banking from the study means it will be impossible for the study to properly measure or compare NZ bank profitability with overseas peers, who report profitability overall, including business banking. ”
Also, FYI, the Commerce Commission has also said: “Potential areas of focus for the study are current accounts, deposit accounts, and overdraft account services, personal loans, and mortgage and credit card lending. There will be less of a focus on financial services such as KiwiSaver, wealth management, insurance, and foreign exchange. Dr Small says the proposed terms of reference for the Commission’s study have been drafted flexibly to allow consideration of further products and services as appropriate, such as broad, cross-portfolio assessments of banks’ financial performance. While the study is firmly focused on the process of competition, it will also consider some outcomes of that process, including bank profits. Dr Small says there are plenty of profit indicators already available and that, in this part of the study, the Commission will focus on assessing them and potential interpretations of them. While the study is firmly focused on the process of competition, it will also consider some outcomes of that process, including bank profits. Dr Small says there are plenty of profit indicators already available and that, in this part of the study, the Commission will focus on assessing them and potential interpretations of them.” I read this to mean the Commission will try to rebuild proper comparisons that account for the exclusion of business banking. That will be difficult, and will inevitably lead to disputation by the banks on the basis of ‘apples vs pears’
This banking study is like ram-raiding a dairy then investigating for littering. Scope misses the main point: banks create and allocate the money supply, with huge “ram”-ifications.