ASB insists it isn't making excess profits

ASB Bank chief executive Vittoria Shortt shrugged off suggestions that her bank is making excess profits in New Zealand.

Thursday, November 14th 2024, 5:44AM

Appearing before parliament's finance and expenditure committee, Shortt said while the Reserve Bank hiked the official cash rate 5.25 percentage points between October 2021 and May 2023, ASB passed on just 4.19 percentage points to its home loan customers on variable rates.

ASB's floating rate was 8.64% but has come down to 7.89% so far this year.

Shortt said her bank alswo cut various fees, including merchant fees, and invested in various digital tools to trying to help its customers manage through RBNZ's hiking cycle.

Answering questions from the committee, ASB chair Therese Walsh said the profits ASB makes is commensurate with the investment its parent, Commonwealth Bank of Australia, has made in this country.

Profits are sufficient “ensure we can continue to operate …. as part of a stable banking sector,” Walsh said. Profits are “vital to the security and safety of the NZ banking system.”

ASB's return on equity (ROE) is similar to other NZ companies, she said. RBNZ data shows ASB's ROE in the June quarter was 1.1%, below ANZ's 1.3% and Kiwibank's 0.5%.

The reason why the Commerce Commission found ASB was more profitable than offshore banks is that many are recovering from the GFC and that profitability in 2024 has now converged closer to ASB's.

ASB needs to access funding from offshore in order to meet the funding needs of NZ businesses and personal customers, Walsh said.

“Without that, we can't pass on the benefits to customers.”

National MP Ryan Hamilton asked how many of ASB's executives earning more than $1 million and was told there were eight.

Walsh said Shortt's base salary is $1.2 million and incentives brought the amount she was paid in the latest year to $5.2 million, up from $2.1 million the previous year.

Shortt said ASB's net profit in the year ended June 30 was $1.364 billion – the statutory profit was $1.46 billion – and that about half of that was paid in dividends to the parent bank and the other half was reinvested into the business.

Hamilton kept pushing for ASB to do something innovative, with his example being to offer first home buyers home loans at interest rates a couple of percentage points below current rates.

Shortt said her bank was interested in the welfare of all its customers but eventually said she would put that suggestion to her product team.

Hamilton kept talking about a customer survey that found only 60% of ASB's customers were happy with its service but Walsh said that isn't the bank's experience and that over 90% of customers say the bank meets or exceeds their expectations.

Shortt noted that ASB has just won an innovation award for its KiwiSaver offering but Hamilton dismissed that as: “just a trophy in your cabinet.”

When asked about the future of competition, Shortt said she doesn't think it will come in the form of new full-service banks such as hers but in firms specialise in specific sectors, such as Rabobank in rural lending, Sharesies in facilitating purchase of equities, the Buy Now Pay Later operators and Apple payments.

“They're not small. Kiwibank has over one million customers. That's not small,” Shortt said.

“The biggest of all is big tech” organisations which have yet to come to NZ.

Walsh noted that such offshore players will only want to be involved in one aspect of banking. “They're not required to fully participate in the NZ community,” she said.

Tags: ASB