Are Australian Banks Seeking Annuities in New Zealand? What can we do there?

These figures are embarrassing for Australian banks operating in New Zealand. The return on equity of their shareholders averaged over 18% before tax last year. This is a high number given the size of the companies. And their profits exceeded $ 18 million a day before tax. That's $ 750,000 an hour and $ 1,400 a year for every New Zealander.

And does the average bank employee know that bank profits are on average 2.8 times higher than those paid?

A bank that loses money is the one that has the least tendency to lend money. But there are too many profits, especially when banks belong to foreign interests.

And here is where New Zealand stands out. We are the only country in the developed world of which I know where the banking system is mainly held by foreign interests. This is a big problem for four reasons.

The first is that it is natural to milk your affiliates abroad if you can, and that is clearly the case here. Massey University has calculated that the profits of Australian banks in New Zealand have increased 75% over the last decade, while GDP has only increased by 23%. And we have already seen that the profits of Australian banks in New Zealand represent a higher percentage of GDP than in Australia.

The second problem is control and destiny. We are vulnerable to Australian banks that are downsizing when things are difficult at home. When they have a sneeze, New Zealand clients are more likely to catch a cold. We should not allow ourselves to be so exposed to the decisions made in Sydney and Melbourne.

The third big problem is our current account deficit. Shipping The profits of Australian banks abroad accentuate the persistence of the deficit and make New Zealand a riskier economy, leading to higher borrowing costs and mortgage rates. Even if the same profits were made by banks belonging to New Zealand, we would be in much better shape with these retained here.

The fourth reason is the most important, the loss of all this money in the hands of the Australian owners. At 2.79 percent 100 percent of GDP, that is a lot in itself, and a huge number if we consider the benefits that would accrue from it if they stayed in the economy.

So what is the solution? [19659002] Appropriate competition, and the sunlight that a bank investigation would bring.

The competition for Australian banks in New Zealand is too weak. Kiwibank is a start, but has not hindered Australian profits. Hopefully the NZ Superannuation Fund and ACC, as significant owners of Kiwibank, will adequately fund Kiwibank to be a serious competitor to the Aussies. This is a golden opportunity to tackle what is a heavy burden on our economy and a tax on our future prosperity.

We also need competition in KiwiSaver. This is a product for New Zealanders, but 85% of KiwiSaver's market share is held by Australian banks. The high management fees they charge are very profitable and support Australian dividends, not New Zealand savers. It is this lack of competition that has motivated the establishment of Simplicity KiwiSaver, to offer New Zealanders a choice of high quality, low cost and locally owned. It attacks the Australian model by giving profits to the members, without aggressive commercial strategy or commissions paid.

And we need a banking inquiry in New Zealand. The problem is too big, with too many similarities with Australia. Informed consumers will make better decisions, so let them know the same way as Australians, through a Royal Commission of Inquiry. If the banks have nothing to hide, they should welcome it. Regulators should also encourage it, because the final game will probably be more resources for them to control an industry so vital to our well-being.

To say that the profitability of banks is a good thing is a truism. But to say that the current profitability of Australian banks in New Zealand is a good thing is that it's a big lie. The Australian banking survey was a moment "emperor of the new clothes" out there, exposing the brutal realities.

We need a similar survey here, so similar behaviors, if they occurred, will be exposed and rectified. Sunlight is the best disinfectant, and we could all be wiser and richer.

Sam Stubbs is the Managing Director of Simplicity