ANZ chief executive Antonia Watson and ANZ board chair Scott St John facing questions from MPs in a Select Committee inquiry into banking competition. Photo: RNZ / Anneke Smith
ANZ's top brass have pushed back against politicians' suggestions the bank is making too much profit.
MPs are scrutinising a series of banks through a Select Committee inquiry into banking competition.
The profitability of banking, including how it's changed over time and how it compares to other OECD economies, is part of the inquiry's remit.
It comes after a Commerce Commission draft report found the sector lacked competition, with the big four Australian-owned banks dominating the major share of it.
The commission's initial review of research showed New Zealand banks had been more profitable than those in similar economies around the world over the past decade.
ANZ's chief executive Antonia Watson and its New Zealand board chair Scott St John appeared before Select Committee this morning.
Watson told MPs the bank's shareholders had invested $17 billion into ANZ which meant it was probably the country's "biggest importer of overseas capital".
"In return for that $17 billion investment from our shareholders, we make just over $2 billion in net profit after tax each year.
"That I acknowledge is a big headline number but it's about a 12 per cent return on equity, which is middle of the road for most publicly listed companies in New Zealand.
"Such a return is about the same as banks overseas if you do an apples with apples comparison: if you compare us with banks and countries that haven't been through banking and economic crises; if you compare us with banks like us in New Zealand that mostly lend to retail and business sectors.
"Returns are, we believe, fair, not excessive or above normal."
The select committee in session. Photo: RNZ / Anneke Smith
Select Committee chair Stuart Smith interrupted Watson's prepared remarks to ask she "wind it up please", adding MPs had all read the bank's written submission.
National MP for Tukituki Catherine Wedd then quizzed the executives about ANZ's profitability, saying the $2 billion figure was "quite concerning" and asking Watson how the bank justified the figure when homeowners and farmers were doing it tough.
Watson said it wasn't fair to compare ANZ to other countries who had experienced banking crisis and whose banks were trading at below their book value.
"We're a big importer of capital into New Zealand that New Zealand needs to be able to grow our economy. We need to provide our shareholders with a fair return on that capital.
"Our return on equity... is at or modestly above, our cost of capital. So just the amount that shareholders like to get to say, 'well, it's worth me investing here rather than somewhere else', and we need to attract that capital into our country.
"We aspire to be a strongly performing bank that can support the New Zealand economy. We do not aspire to be average," St John added.
Labour MP for Manurewa Arena Williams pushed Watson to explain why ANZ disgreed with the Commerce Commission's finding that it did not observe consistently strong rivalry between the major banks.
"Our market does not have little to no competition," Watson said.
"One of the other things we disagree with the Commerce Commission on is that Kiwibank's not a maverick competitor. They are winning 25 percent of home loans and business banking at the moment. That is significant competition and we are going out there every day to win and retain customers."
Greens co-leader Chlöe Swarbrick asked Watson why large banks in New Zealand's return on equity was second only to Canada and 19 percent higher than Australian large banks.
"We do not aspire to be a country where our banks are trading at below book value, are earning at less their cost of capital and one of the reasons for that is we have to attract the capital to New Zealand to be able to run our banking system and that's different to many other countries."
Watson then told MPs she was paid about $2.5 million dollars in cash last year, following a question from Hamilton East MP Ryan Hamilton.
Hamilton asked Watson what concessions ANZ had made over the last few years while average New Zealanders' mortgages had gone up by hundreds of dollars a week.
"I completely understand it's really tough. Over the last few years anyone who's got lending has had their interest rate possibly double," Watson replied.
"What we did do is we raised deposit rates more than we raised raised lending rates and on the way down we've actually lowered deposit rates less than we've lowered lending rates so I think that's a good concession to be made."
Stuart Smith got the last question in this morning's session, asking Watson if she had considered a corporation tax surcharge, seen in the UK and Australia, after her public endorsement of a capital gains tax.
"Around the world, we've seen excess profit tax. They've been because there's been something that's happened that's caused an excess profit. ...we don't make excess profits.
"We're around about at our cost of capital so the minimum that an investor would would choose to earn to keep their money invested in us."
Rabobank, ASB, Westpac, BNZ and Kiwibank are all due to appear before the select committee in the coming months.