Are we just nicer than Aussies? Don’t bank on it
One of the uncomfortable questions left unanswered by the report into the behaviour of New Zealand’s banks can at least be framed in a positive light: Are we simply nicer people than the Australians? Despite spending more than 14,000 staff hours, with visits to banks throughout the country, the Reserve Bank and the Financial Markets Authority (FMA) report into New Zealand’s banks found little of the systemic problems thrown up by the Australian royal commission into the financial services sector had been observed here.
When the interim Australian report was released at the end of September it was described as a ‘‘day of shame’’ by the industry in Australia. The four banks that dominate there also own the four dominant banks in New Zealand. ANZ and Westpac even carry the same name and branding.
There is also compelling evidence that the leading New Zealand banks are more profitable than the Australian parent companies. So how can there possibly be a significant difference in behaviour?
Critics have argued that this is surely a fiction, that the New Zealand report was ill-equipped to uncover the real state of the sector and it is time to have a royal commission here.
There is good reason to be sceptical about what regulators say about the sector in light of the Australian experience.
Before the Australian Government launched the royal commission, regulators there gave the industry a largely clean bill of health.
But while the New Zealand conduct report acknowledged there was behaviour in the sector that it did not uncover, it is getting harder to believe that the same problems seen across the Tasman are at play here, if only we looked in the right places.
The New Zealand report was undertaken as the Australian hearings were unfolding. Despite the heightened attention, and the fact that for months regulators, consumer groups and the media have been searching for genuinely egregious conduct in the sector, the findings have been limited.
Given the lack of obvious systemic issues, and the fact the royal commission is estimated by some to be costing $100 million before it even starts leading to changes in the sector, the value of replicating the process here seems questionable.
The more plausible theory is that Australia’s economy – like its sport and politics – is simply more bloodthirsty than New Zealand’s.
While much of this is simply a function of Australia’s larger scale, the ball-tampering episode which reminded the world of Australian cricket’s willingness to win at almost all costs speaks to a cunning ruthlessness that is rarely seen here.
The New Zealand Bankers’ Association effectively claimed that the reason we do not have the same issues as seen across the Tasman was because customers were difficult to avoid. ‘‘It comes down to the smaller size of our country and the smaller size of our banks. We’re more connected, we’re talking to our customers on the sideline of footy matches on a Saturday,’’ acting chief executive Antony Buick-Constable told MPs in September.
But even if New Zealand’s banking sector does not have the same problems as were found across the Tasman, the report suggests this has been down to good luck more than good management.
It is not as if the report did not find poor behaviour, including isolated examples of ‘‘inappropriate lending and sales, fees materially outweighing benefits to customers, manipulation of customer records to influence satisfaction outcomes, and manipulation of branch sales records’’.
Both the FMA and the Reserve Bank have accused banks of failing to pay attention to whether they are serving the long-term interests of customers, relying instead on whether customers were happy when they signed up to a product, which they were often in no position to judge.
Reserve Bank governor Adrian Orr even linked the findings of the report directly to the strong profits being reported by the Australian banks, saying the cost-to-income ratios may be a sign of a lack of investment in areas such as governance and monitoring conduct.
This was a none-too-subtle warning: in the face of a threat of stricter regulation, you are in no position to come crying to us about how many added costs you may face.
The early signs are that the banks will jump to attention, accept the report findings and move to change bonus systems to ensure staff are not pressured to sell products to customers who do not need them.
With the regulators pushing for law changes to give them greater power over bank conduct, and the Government raising questions about whether bank profits are acceptable, this may be as much about preventing the reputation of the sector heading in the same direction as their owners.
The more plausible theory is that Australia’s economy – like its sport and politics – is simply more bloodthirsty than New Zealand’s.