Joe Hendren

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Sunday, July 09, 2006

Brian Gaynor: Profits for banks, losses for New Zealand

Bryan Gaynor in the NZ Herald demonstrates how the New Zealand economy loses while the overseas owned banks profit.

"One of the unique features of the New Zealand economy is the size, influence and profitability of the banking sector. KPMG's Financial Institutions Performance Survey 2006 says the country's 16 registered banks had net earnings of $2.66 billion in 2005, compared with $980 million 10 years earlier. Banking is the most profitable commercial activity in New Zealand by a country mile."

While it has been common among the right wing elite to criticise Kiwis for sinking too much of their capital into the housing market, Gaynor points out this could have a lot to do with the lending practices of the banks themselves.

The banks, particularly the four major Australian-owned banks, have a strong bias towards the housing market as residential mortgages now represent 50.5 per cent of total bank lending compared with 47.7 per cent at the end of 2004. By comparison, residential mortgages have fallen from 36.3 per cent to 35.2 per cent of total Australian bank lending over the same period.

Despite the continued hype about attracting foreign investment, allowing significant overseas ownership of core assets like banks is never a free lunch. Overseas owned banks account for 98.2% of New Zealand's total banking assets, and this is a major contributor to our mammoth current account deficit.

"Net bank overseas borrowings of $68.2 billion are a huge cost to the country and these borrowings contribute an estimated $1.7 billion to the current account deficit.

Thus, the 14 overseas trading banks contributed in excess of $4 billion to the March 2006 year $14.5 billion current account deficit through a combination of their net earnings and offshore borrowings. Bank economists don't quote these figures in their analysis of the New Zealand economy.

This makes the banking sector the fourth-largest contributor to the current account deficit after oil, mechanical machinery and automotive imports, which all exceed $5 billion a year."

I am pleased to see someone else (other than me), point out how the so called 'economic commentary' offered by the banks so often coincides with their own private interests.

If you want to do something about New Zealand current account deficit - start by banking with a New Zealand owned bank, and stop these bunch of bankers profiting at our expense. We also need to call for greater controls on the lending pratices of the banks, to ensure they are not encouraged to damage the New Zealand economy in pursuit of their own short term profits.

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At 12:04 pm, Anonymous Anonymous said...

It's hardly a great piece of intellectualism for you to argue that banks will push for their private interests. Of course, they are going to do that. All people will promote their own interests, whether they be beneficiaries, or wealthy people, or whatever.

The important and difficult part is how the interests of people are balanced. How are the selfish demands of people balanced against the basic needs of all people?

On that basis, there will need to be some kinds of rules about the conduct of banks. However, it's a very large jump to go from that point to nationalisation of foreign banks.

The remainder of your post is just confused nonsense. Why, for example, should we be concerned about the balance of payment deficit? You don't provide any basic explanation for why a deficit is bad, while a surplus is good.

To go from basic assumptions, or simple facts, to a large and expensive policy as bank nationalisation is not a very good way to make government decisions. Especially, when the opportunity costs involved with bank nationalisation are so high. Wouldn't it be better to spend the money on improving education, or basic infrastructure?


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