The banks affect every person and every business and every institution in the country. And the sector is completely dominated - as it has been for many decades - by the four big Australian-owned banks: ANZ, ASB, BNZ and Westpac. They have been a staple in Watchdog for years but it's been a while since we last put them under the microscope. To be precise, I last wrote about them in detail in issue 152, December 2019 ("Banksters Still Living It Up In Wild West. But There's A New Sheriff In Town").

That 2019 article concluded by calling for a commission of inquiry into the banks, as had happened in Australia - an inquiry which unearthed all sorts of damning and reprehensible practices and led to heads rolling. Well, spoiler alert, the Government has not followed the lead of its Australian counterpart. The New Zealand subsidiaries of those very same Australian banks have been allowed to carry on business as usual. So, another spoiler alert, they have carried on with the very same things that have led to them being reviled for years. Let's look at some recent examples of the most egregious corporate misdeeds.

Westpac Threatens To Sell Up

In early 2021, Westpac announced that it was reviewing its New Zealand operation, including the option of selling Westpac NZ. "It said it wanted to simplify its business and structure, and had been rationalising its overseas operations. But it also cited increasing pressures from the Reserve Bank of New Zealand, which will force it to increase the amount of capital for the local operation and separate its New Zealand business from the Australian operations".

"Financially, Westpac NZ has been a solid earner for the parent group. It is the third-biggest retail bank in New Zealand, with about 20% market share, a nationwide branch network, and a full range of services such as KiwiSaver, insurance and advisory services. It is also the Crown's banker, handling the bulk of financial transactions for Government agencies. At the last annual result (i.e., in 2020) it reported assets of $113 billion, net loans of $89m, and a net profit of $681m...".

"The Reserve Bank of New Zealand (RBNZ) regulates the banking industry, and in particular the role and behaviour of the four big Australian-owned banks. It calls them systemically important banks because they control about 85% of the local banking market. In the early 2000s, the RBNZ revamped the sector rules, requiring the New Zealand operations to be structurally and operationally independent of their Australian owners. That was driven by a desire to stop the New Zealand branches being 'raided' by their parents if they were in trouble in Australia".

"Westpac resisted the move strongly, wanting to do its own thing. The RBNZ wielded the big stick and Westpac reluctantly fell into line. In 2017, the RBNZ ordered Westpac to beef up its finances after discovering it was using unapproved methods to calculate how much risk it was under. Earlier this week (March 2021) the RBNZ said it had ordered Westpac to hold more cash because it was not complying with liquidity rules".

"Westpac says the RBNZ's delayed rules forcing the big banks to hold more capital in case of financial catastrophe could cost it between $1.6bn and $2.2bn" (RNZ Business, 25/3/21, Gyles Beckford).

But, surprise, surprise - in June 2021, Westpac announced that it had decided not to sell its NZ subsidiary. "Sam Stubbs, Chief Executive of the Simplicity KiwiSaver scheme, and vocal bank critic, said: 'I'm sure that somewhere internally Westpac has decided to do a review, but I didn't believe they would be selling with a net interest margin of 2%, and a return on equity of 10%'".

"Stubbs believed Westpac's announcement had been designed to put pressure on Reserve Bank Governor Adrian Orr to water down its decision to require banks to hold more capital. 'The banks have been cashing in goodwill for some decades, but in this Governor, they have got someone who is willing to call their bluff', he said".

"The business would have been expensive for a buyer, Stubbs said, though he had not discounted the possibility of a buyer like a Chinese bank being willing to make a good offer. But 'why would you sell the goose that lays the golden eggs?' Stubbs said" (Stuff, 24/6/21, Rob Stock).

So, Westpac has taken a leaf out of Rio Tinto's book (see my article about the Bluff smelter elsewhere in this issue) - threaten to leave the country if the powers that be do something you don't like, something that you deem not to be in your transnational corporate interest. And then magnanimously deign to continue gracing the country with your presence.

And, as Sam Stubbs said, why would you sell the goose that lays the golden eggs? In November 2021, Westpac announced a $1 billion after tax annual profit in NZ - a 56% increase on the previous year (in 2021, all the banks - of whom the four Australian-owned ones are the biggest - made a combined after-tax profit of $6.13 billion, the first time that figure has topped $6b, and an increase of 48% over the previous year).

Reserve Bank Rips Into Westpac Board

The Reserve Bank was not finished with Westpac. In 2021 it released a report it had commissioned on the failures of Westpac's Board. It highlighted five grave failures. "The bank's independent non-executive Directors collectively lacked sufficient expertise in the critical areas of banking, risk management, and banking technology to guide the business, the report found". The Board was "swamped with irrelevancies".

"Board and Board committee meetings were attended by a significant number of non-Board members, the report says. Non-Board members materially outnumbered Directors on most occasions. 'This created an environment of increased formality, reduced the opportunity for Director discussion, and led some Directors to feel uncomfortable challenging the executive in the presence of their direct reports for fear of undermining them'".

"There were inconsistencies in 'tone from the top' on risk, the report says". And, finally, there was poor oversight on remediation. Since the Reserve Bank ordered the report, Westpac has overhauled its Board, appointing five of its nine Directors since then (Stuff, 26/11/21, Rob Stock).

A Tsunami Of Closures Of Branches & ATMs

For years, soaring bank profits have been inextricably linked with another hardy perennial - declining bank services. Profits up, services down. "The big five* banks closed 84 branches and 249 ATMs in one year, a report from KPMG shows. Overall, the entire banking sector, including smaller banks like TSB and SBS, went from 934 retail bank branches at the end of September 2019 to 850, and from 2,465 ATMs to 2,216 at the end of September 2020" (*the fifth biggest bank is Kiwibank. MH.).

"But since KPMG gathered its branch and ATM statistics, another 77 big bank branches have been closed, and about 50 more ATMs have been decommissioned by the big five banks... KPMG's figures showed the number of bank-owned ATMs had also been dropping. Reserve Bank Assistant Governor Christian Hawkesby said in a speech in October 2020":

"'This is particularly evident in rural communities on the West Coast of the South Island where there is only one bank ATM located between Wanaka and Hokitika - a distance of 418 kilometres'" (Stuff, 27/6/21, Rob Stock).

Cash Is Becoming Endangered Species

Not only are bank branches and ATMs closing, but banks are increasingly turning their backs on cash (following on from their ending of cheques). "A quarter of people told (Reserve Bank) researchers they found it hard to get cash, and half found it hard to deposit cash in a bank.... The preferred method of paying has changed dramatically as banks have migrated customers away from eftpos cards and cash, to higher-fee credit card and debit card contactless payments" Stuff, 7/7/21, Rob Stock).

Credit cards and online banking are fine - I use both of them and CAFCA has gone to online banking (we had no choice once cheques ended). But they depend on people having digital access to the Internet, which a certain percentage of the population doesn't. Even more fundamentally, they are completely dependent on the power being on. Ask anyone who lived in Christchurch in the days, weeks and months after the February 2011 killer quake and they'll tell you that cash was king - no power, no Internet, no mobile phone coverage. And, of course, there were still cheques then.

And for some bank business you still have to go to a physical branch. That brings its own problems, especially for people in small towns and rural areas. "There is no such thing as popping into a bank these days, because there's barely such a thing as an actual bank" (Stuff, 3/2/22, Virginia Fallon).

Banks Secretly Lobbied To Have Law Changed

The banks will go to great lengths to protect their own interests and hide their own stuff ups, but are not keen on that being found out. "In June 2015, the National government led by Sir John Key created the law that would be used this year (2021) to launch a class action law suit against ANZ by home loan borrowers".

"Key, ANZ's current Chairman, was at the helm when section 99 (1A) of the Consumer Credit Contracts and Finance Act (CCCFA) came into force as part of a drive to get lower tier lenders to treat vulnerable borrowers decently. The clause required lenders to refund all costs of borrowing, meaning fees and interest charged, during a period in which they were in breach of loan disclosure laws designed to ensure borrowers were fully informed about their loans".

"But in May 2016, ANZ realised it had made errors in loan variation letters sent to thousands of customers between May 2015 and May 2016, potentially leaving it on the hook to pay a large sum to those borrowers. That month, the banks launched an intensive lobbying operation to get the law changed, and to make the changes retrospective".

"The lobbying operation was carried out by the New Zealand Bankers' Association. On May 17, 2016, the Association wrote to the Ministry of Business, Innovation and Employment (MBIE) to protest that section 99 (1A) was unfair because it meant the banks 'must refund costs of borrowing in all situations, even if they've corrected non-disclosure or there is no material harm to the borrower'".

"The letter from the Association's Chief Executive at the time, Karen Scott-Howman, was unearthed by Auckland lawyer Scott Russell, who is taking the case with a litigation loan from funder LPF. Russell said ANZ lobbied Parliament to change the law after it realised in 2016 the bank had breached its disclosure obligations".

"'They didn't tell the Commerce Commission until June 2017 that they had made the error, over a year after they had lobbied Parliament to change the law. They didn't tell their own customers they had made the error until a year after that'"... "Even when ANZ admitted in May 2018 that it had made an error to customers, it did not explain the possibility that it had a legal duty to pay back all the interest paid during the period in which the bank had failed in its obligations to them".

"When in mid-2018 ANZ said it would make payments of about $10 million to customers, Russell said borrowers who got in contact with their banks to try and understand what had happened, were told little.

'A lot of them got in touch with their bank managers, who couldn't tell them what they were being paid for', Russell said. He said it looked like the bank was trying to tell borrowers as little as possible. In March 2020, ANZ committed to paying a further $29.4 m to borrowers over the errors in a settlement with the Commerce Commission".

"In March 2020 the law was changed, giving lenders the right to apply to the court for relief from the consequences of breaching disclosure obligations, but not retrospectively... Russell said the lobbying by the well-funded Association showed the political power of banks. 'It's an unfair playing field really. The very well-resourced banks against consumers who place their trust in the banks', he said" (Stuff, 21/11/21, Rob Stock).

Banks Turn Screws On Borrowers, Blame Governmen t

Banks have other ways to apply pressure on the Government. The conditions for approving home loans have been tightened up, to protect vulnerable borrowers from getting over-committed and being unable to service the mortgage. These changes came into effect in December 2021 and were aimed at lenders at the bottom end of the market.

But the banks seized the opportunity to tighten the money tap for home loan borrowers, particularly first home buyers, and there was much adverse media coverage of people saying they were refused a loan because their bank adjudged that they spent too much on things like coffees at cafes, Netflix subscriptions and gym membership fees. The banks said don't blame us, we're simply applying the law, blame the Government.

"But while brokers, lenders and banks have mounted a strong pressure campaign to roll back some of the new regulations, researcher Jessica Wilson says: 'All this fuss they are making. It's really hard to see the basis for it. I think they are crying wolf. They are not being asked to do all that much really', says Wilson, who was head of research at Consumer NZ until recently. What banks and other lenders are being required to do is document evidence for loan applicants' personal incomes and expenditure, and require borrowers to have a reasonable 'surplus income' buffer to guard against borrowers suffering substantial hardship as a result of making repayments".

"These requirements are set out in regulations, but Wilson says: 'The changes to the regulations are pretty minor. They are not some huge hurdles they have to jump through. It seems to be very convenient to use it as an excuse in the current environment, where there are other factors forcing them to be more conservative in their lending', she says".

"'Interest rates and living costs are on the rise, and the risk house prices could fall leaving banks over-exposed is forcing them to be more circumspect in their lending', Wilson says. 'Tighter controls set by the Reserve Bank on loan-to-value ratios also mean home buyers without a 20% deposit will have a harder time getting through the door".

"But lending law critics are instead focusing their energy on new regulations', she says" (Stuff, 9/2/22, Rob Stock). The Minister of Commerce and Consumer Affairs, David Clark, ordered officials to conduct an inquiry and invited bank chief executive officers to meet with him in person.

Time To Get Tough On Banks

The banks make it their business to get things their own way, whether it be sky high profits, cutting services or throwing their political weight around by threatening to leave the country, quietly getting laws changed or, more openly, using home loan borrowers as useful pawns and distractions from the real reasons why they are tightening lending. Not only should the Government hold an inquiry into the banks, it should significantly tighten regulation of them.