Commerce Commission Market Study into Personal Banking Services

Antonia Watson

CEO, ANZ Bank New Zealand 

ANZ welcomes the work the Commission is doing on Personal Banking Services and looks forward to assisting the Commission to progress its draft views as it finalises a report for August.

The New Zealand banking and financial services sector is competitive and steps to further enhance competition can only benefit consumers.

Our staff go out every day to provide superior products and services to our customers and we back ourselves to beat the competition.

New Zealand also has stable and secure banks and that’s important for a well-functioning economy. Having AA-rated banks like ANZ gives consumers confidence in the financial architecture of the country.

Like with many industries, size and scale in banking enables improved access to funding, better technology solutions, improved processes and well-priced products and services for consumers. 

That scale also helps attract critical capital to the country.

There is a lot in the draft report we agree with, including many of the findings and recommendations.

We support opening up customer data safely, ideas to empower consumers including switching, clawbacks and overcoming barriers to access and financial inclusion that are unique to Māori.

We agree with the Commission that discussion about the regulatory and legislative environment is important because it can act as a barrier to entry.

We support ideas aiming to reduce that burden without negatively impacting the stability and safety of the financial system or consumer protection.

"We look forward to a constructive, evidence-based and apples-with-apples discussion on competition, profitability and other matters in the coming days."

Antonia Watson, CEO, ANZ Bank New Zealand 

There are parts of the draft report ANZ disagrees with, particularly the Commission’s draft findings that ANZ does not face strong competition and we have high profitability relative to international peers.

On competition.

Far from presenting a market that is lacking in competition, the evidence in the draft report supports a finding that the market is competitive, vibrant and healthy.

ANZ competes closely with our peers, including Kiwibank.

We are always ‘on’ – constantly assessing developments and adjusting our offerings in view of the dynamic competition in the market. We set ambitious targets for ourselves.

I specifically call out Kiwibank because they are a disruptor to the market, the best evidence of which is a market share that is growing at the expense of the larger banks.

Kiwibank’s fast growth (and our projections of its future growth) demonstrate that they are a strong competitive threat.

Price and non-price competition is strong, with many fees competed away, and banks differentiating themselves on service and turnaround times, trust and security and innovative offerings.

That non-price competition is an important feature of the market, as the Draft report recognises.

Customers are engaged.

As the Commission acknowledges, multi-banking is common, and increasing – it has the same impact as switching, from a competition perspective.

And customers can and do switch when they see reason to. Our staff see and feel that competition daily.

On profitability.

We do not believe the Commission has done the work needed for it to reach any conclusion on whether New Zealand banks’ profits are consistent with their cost of capital and a competitive market.

There are two parts to this.

First, we are unsure why the Commission hasn’t followed its usual approach for assessing profitability. That usual approach would include the Commission assessing a bank’s cost of capital on a bottom-up basis.

We engaged independent experts Incenta to do that; their work shows our returns are within a normal range. 

Second, it is critical that any profitability comparison is an apples-with-apples assessment. The Commission’s comparison does not compare apples with apples.

When such a comparison is made, as Incenta has done, ANZ’s profitability is consistent with similar banks globally.

Our return on equity between 2010 and 2021 has been around 12.3%, in line with similar banks overseas at 12.2%, and modestly above our cost of capital, which is the minimum return an investor would expect for providing capital to our bank.

We also saw an excellent example of not comparing apples with apples last week on net interest margin or NIM.

Some commentators incorrectly claimed ANZ’s NIM in New Zealand for the first half of our financial year was materially higher than ANZ’s NIM in Australia.

The so-called “Australia” margin of 1.56% was for ANZ’s global operations including Australia and New Zealand, plus around 30 other countries, and importantly included our global Markets business, which has a large and fluctuating negative impact on overall NIM. 

The New Zealand NIM of 2.56% is for our New Zealand retail and commercial businesses. The accurate comparison to that New Zealand NIM is the combined margin of ANZ’s retail and commercial businesses in Australia, which is 2.52%.

So, a 4-basis point difference which is more than explained by the higher levels of capital we must hold in New Zealand.

We look forward to a constructive, evidence-based and apples-with-apples discussion on competition, profitability and other matters in the coming days.