Banks own behaviours lead to lower profits

For immediate release

27 April 2010

Banks own behaviours lead to lower profits

The latest KPMG industry report card shows New Zealand banks were not immunefrom the sorts of behaviours that led to the global financial crisis.

“The drop in net profit was mainly due to paying back the government for tax avoidance and having to make big provisions for bad debt as a result of questionable lending,” said Finsec Campaigns Director Andrew Campbell.

“These negative behaviours are on the same continuum as those of the Wall Street banks that triggered the global financial crisis.”

“The banks have incentive pay schemes that reward staff for the number of loans and credit cards they sell to customers. When you have this kind of sales culture in place it is not surprising that a lot of that lending has now gone pear shaped,” said Campbell.

“The higher provisioning for bad debt is the chickens coming home to roost,” saidCampbell.

Andrew Campbell said the promising upturn in profit has unfortunately beenaccompanied by a ‘relaxation’ in lending criteria.

“It appears that the desire for huge profits has once again lead to debt being easier to get and that the banks appear to have learned little despite having to write off many billions of dollars over the last 18 months.”

“We need to be part of a new global set of rules for banking that increases accountability and reduces the risky business that has characterised banks for far too long,” said Campbell.

ENDS

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