18 July 2002

Profits of overseas banks

There is nothing wrong with making a profit.

It is very important for banks to make a profit.

But when profits reach a certain level, it indicates that:

- There is inadequate competition in the market;

- There is room for a new competitor.

- The New Zealand economy is being drained of wealth earned from New Zealanders and New Zealand resources.

New Zealand has the highest level of overseas ownership of its financial system in the developed world.

Few other developed countries allow more than fifty per cent of their financial system to be overseas-owned. Before Kiwibank opened, 98 percent of New Zealand’s banking system was overseas owned.

Very high profits being made by overseas-owned banks result in a significant proportion of New Zealand’s GDP going overseas. That means a significant proportion of each person’s daily work goes simply towards the profits of overseas banks, and not towards increasing the wealth and well-being of New Zealanders.

Here are some examples of the size of the profits being removed from New Zealand by the overseas owners of our financial system:

Bank of New Zealand [National Australia Bank]

The BNZ has declared an after tax profit for the six months ended 31 March 2002 of $317 million.

That was up 43 percent from $221 million the year before.

For the six months to March 2002, the National Australia Bank declared a profit on its New Zealand retail banking operations alone of A$197 million - or about NZ$231 million at today’s exchange rate.

That is an increase of 30 per cent over the six months to March 2001.

Repeated across the full year, it would mean that the BNZ declared a profit for its Australian owners of more than 0.6 percent of New Zealand’s GDP.

WestpacTrust (Westpac Australia)

WestpacTrust has declared a profit for the six months to March this year of NZ$231 million.

That is up by 7 per cent from a profit of $216 million for the same six months last year.

ASB Bank (Commonwealth Bank of Australia0

For the year ended 31 March 2002, ASB Bank declared a net profit of NZ$208 million.

That was up nearly 17 percent from $178 million the year before.

ANZ (ANZ Australia)

The ANZ announced a profit on its New Zealand subsidiary of $198 million for the six months to 31 March 2002.

That was up nearly six per cent from $187 million in the same six months the year before.

National Bank (Lloyds TSB, England)

The National Bank has disclosed an after tax profit for the three months ended 31 March 2002 of $120m.

That was up from $107 million in the same three months last year.

Overall

If the profit announcements up to the end of March this year were annualised, then the five major overseas-owned banks are reaping profits from New Zealanders of $2180 million this year.

In other words, more than two dollars out of every hundred produced by New Zealanders this year will go to the overseas owners of the banking system in profit.

A significant proportion of this profit is made up from activities such as selling life insurance, currency dealing and funds management.

If we assume that all the major banks make the same proportion of profit from each sector as the BNZ makes, then the five major banks would be making a profit on fees and interest rates from their retail banking operations of $1591 million.

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