Latest / Early Edition with Ryan Bridge / Shamubeel Eaqub: Simplicity Chief Economist on banks returning high profits with low levels of innovation

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Shamubeel Eaqub: Simplicity Chief Economist on banks returning high profits with low levels of innovation · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: It's bank profit watch time. A and Z's up twenty
• 0:02
  Speaker 1: percent two and a half billion. Last week, Westpac thirteen percent,
• 0:06
  Speaker 1: increased to one point one billion. Schama Jakob is Simplicity
• 0:09
  Speaker 1: chief economist with US this morning, Shama.
• 0:11
  Speaker 2: Good morning, good morning.
• 0:13
  Speaker 1: Are you buying the lines that are coming out of
• 0:15
  Speaker 1: Antonio Watson's mouth? Are you buying the lines from the banks.
• 0:18
  Speaker 1: The net interest margin is up well slightly, But when
• 0:23
  Speaker 1: you compare apples with apples with Australia, with their Australia business,
• 0:27
  Speaker 1: actually the difference is explained by capital requirements.
• 0:31
  Speaker 2: Here, not really, because that net interest margin has been
• 0:36
  Speaker 2: higher than Australia for a very long time, and the
• 0:39
  Speaker 2: reason why that's high is because they pairs less on
• 0:42
  Speaker 2: oine deposits and charges more on our mortgages.
• 0:45
  Speaker 1: If you look through the results for A and Z,
• 0:50
  Speaker 1: their cash profits up by four percent, which is the
• 0:53
  Speaker 1: same amount they've grown their balance sheet by.
• 0:56
  Speaker 2: Exactly. So it's very much a story about their net
• 0:59
  Speaker 2: interest margins being pretty much the same, a small increase,
• 1:02
  Speaker 2: but it's really been that modest growth in lending and
• 1:06
  Speaker 2: deposits that's driving their profits.
• 1:08
  Speaker 1: Is there a band thing, Well, the bad.
• 1:12
  Speaker 2: Thing is how much they charge us. So we want
• 1:15
  Speaker 2: our banks to be profitable and safe, but not the
• 1:18
  Speaker 2: charge is an unreasonable amount. That was the reason why
• 1:21
  Speaker 2: we have the hearing that the Nicolobelas started. That's why
• 1:26
  Speaker 2: the Commerce Commission was meant to look at it. We
• 1:28
  Speaker 2: need to get serious about banking competition in New Zealand.
• 1:31
  Speaker 2: The problem for us is that we have a bank
• 1:33
  Speaker 2: banking sector that's extraordinarily safe, extraordinary profitable, not particularly innovative,
• 1:39
  Speaker 2: and we don't get products and services. Why are we
• 1:41
  Speaker 2: paying so much for so little?
• 1:44
  Speaker 1: How much more are we paying than the rest of
• 1:46
  Speaker 1: the world.
• 1:48
  Speaker 2: Much higher and so As you know, when the Commerce
• 1:50
  Speaker 2: Commission did that work, there was quite a lot of
• 1:52
  Speaker 2: argument around those metrics. But the reality is that the
• 1:57
  Speaker 2: New Zealand banking sector is one of the most profitable
• 2:00
  Speaker 2: in the ovciting and it is not one of the
• 2:02
  Speaker 2: most innovative. And the reality is that if we want
• 2:06
  Speaker 2: to if you are to pay higher prices, we should
• 2:08
  Speaker 2: get something in return for it, and we are not.
• 2:10
  Speaker 2: So we need to get serious about having much sharper teeth.
• 2:14
  Speaker 2: As the next inquiry of the banking sector, the current
• 2:16
  Speaker 2: one is not doing enough.
• 2:17
  Speaker 1: Everyone goes on about competition. We've got twenty seven registered
• 2:20
  Speaker 1: banks in New Zealand. How many would make good competition.
• 2:25
  Speaker 2: Well, it's not the apples for apples, because when you
• 2:27
  Speaker 2: look at building societies and others, those banks are regulated
• 2:31
  Speaker 2: very differently. They have very small bound sheets and they're
• 2:34
  Speaker 2: not particularly well performing. So we do need to have
• 2:38
  Speaker 2: the kinds of fintech tyche companies that are being real
• 2:41
  Speaker 2: challenges in Europe in particular. I think that's the kind
• 2:44
  Speaker 2: of competition we need to see in quite a big
• 2:46
  Speaker 2: way in New Zealand. We've got the beginnings of that
• 2:49
  Speaker 2: with things like open banking. That's only the beginning and
• 2:52
  Speaker 2: we need to really push ahead on that because clearly
• 2:55
  Speaker 2: New Zealand is a sector where financial services can do
• 2:58
  Speaker 2: very well. Why should not New Zealanders also receive good
• 3:02
  Speaker 2: products and services at the same.
• 3:03
  Speaker 1: Time, Shamu was interesting. Appreciate your time, Shammo bon Jakop
• 3:06
  Speaker 1: Simplicity Chief Economists.
• 3:08
  Speaker 2: For more from early edition with Ryan Bridge.
• 3:10
  Speaker 1: Listen live to news Talks it'd be from five am weekdays,
• 3:14
  Speaker 1: or follow the podcast on iHeartRadio.