Commerce Commission Market Study into Personal Banking Services

"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.