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Opinion: Big NZ banks take a leaf from Arkwright's open-all-hours policy

By Andrew Macdonald

Friday 7th May 2004

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It was a case of Open All Hours for the big five banks as they raked in profits in 2003 with gusto akin to that of the fictional British shopkeeper Arkwright in the 1970s BBC television series.

Last year registered banks in New Zealand posted a collective net profit after tax (npat) of $2.5 billion, or about $610 for each of the four million residents.

The combined npats of the big five banks' - ANZ, ASB, BNZ, National, and Westpac, which are all Australian owned - equated to $2 billion, or 81% of the total for all registered banks.

They were helped along by a property boom that swept the nation, one that would have had the canny Arkwright and bank bosses alike rubbing their hands at the thought of higher profits.

But there the similarities end - the banks have no Granville or Nurse Gladys Emmanuel to temper their bent for surpluses.

In the banks it's all about efficiency, profitability and return on investment, which pose, at least, a couple of questions.

Which of the 18 registered banks, from a customer perspective, is the fairest of them all? And, what are the implications of the big five banks being Australian owned?

A survey of financial institutions by business consulting firm KPMG goes part the way to identifying the best bank, but shies from issuing a rankings ladder as it did in the past.

KPMG banking and finance group chairman Andrew Dinsdale explains why.

"It's too hard, too bloody hard," he says of the survey out this week.

"It [a ranking ladder] is very, very judgmental. Everyone used to get pissed off with it and of course [it] didn't have value to anybody so we dropped it about five years ago," he says.

However, a KPMG staffer at the survey's presentation in Wellington told NZPA that bank officials used to clamour see their firm's rating.

Then, of course, there's customers - they have a vested interest in their bank's performance.

The KPMG survey, which measures banks on the results they posted at their respective balance days in 2003, remains the best source of information on performance.

It tells us, for example, that National had the biggest asset book at $42.3 billion, followed by Westpac at $39.08 billion and BNZ at $37.56 billion.

But big isn't always best, so that measure alone won't tell us which bank holds the top rung.

When ranked according to npat, BNZ topped the list with $548 million.

Next came Westpac ($462 million), ANZ ($417 million), National ($296 million), and ASB ($278 million).

When expressing operating expenses as a percentage of operating income, Westpac, at 41.5%, was in pole position.

In second place was BNZ (44.86%), followed by ASB (47.86%), National (50.03%), and ANZ (50.15%).

And those figures don't say much about customer satisfaction, which is sometimes measured in inverse proportion to profitability.

Altogether, the KPMG survey rates the big five banks across nine categories, though no one bank can be conclusively labelled best of the bunch from these measures.

The all-important mortgage market is in much the same boat, with the combined weight of ANZ and National hogging 41% of the $82.2 billion mortgages on issue in 2003.

Westpac holds 19.2%, followed by ASB with 18.4%, BNZ with 15.8%, and other banks with 5.5%.

The banks are clearly embracing customer satisfaction as a key to sustain their current profits and, hopefully, grow them in the future.

Several have taken to quirky television ads - for example, ASB's Ira Goldstein - to show how they can better serve their customers or poach others from their competition.

Customer satisfaction surveys of the banking sector are keenly watched by the participants.

Auckland University found that, in 2003, 58% (72% in 2002) of TSB Bank's customers were "very satisfied" with the service they received.

ASB Bank was ranked second with 45% (36%) of its customers declaring themselves "very satisfied".

It was followed by National Bank at 41% (38%), Bank of New Zealand at 30% (20%), Westpac at 29% (14%), and ANZ Bank at 25% (14%).

Westpac is one bank that wanted to improve its standing, last year unveiling its corporate social responsibility package, one that evokes corner store-style customer care.

It's director of corporate affairs, June McCabe, told NZPA last year that Westpac had to improve its customer satisfaction rating within two years.

"I have to say that some of us won't be here if we're still fourth out of five," she said at the time.

On that note, customer service is increasingly tending towards Arkwright's Open All Hours dicta, via the Internet and ATMs, that is.

Across the top five, the number of customers using Internet banking in 2003 increased to 1.36 million, up 32% from 2002.

Of the Internet customers, 79.6% rated the online banking as good or excellent.

The number of ATM machines has been rising steadily since 1994, while the number of branch offices and staff have generally declined over the past decade.

The result - lower overheads leading to improved profits, which are for the most part winging their way overseas, mostly to Australia.

Massey University's head of banking studies, David Tripe, says the past decade was a good one for the banking sector, "being very positive" for their financial performance.

"There's always a question as to how long the solicitous circumstances are going to last and that's the point of concern that's hanging over the market to some extent.

"How long are things going to keep being good? Sooner or later there is the potential for some problems to occur," he says, noting reduced profits are the most likely outcome.

Enter the Reserve Bank of New Zealand (RBNZ) and its foreign ownership inquisition.

With the exception of Kiwibank and TSB Bank, 16 of New Zealand's 18 registered banks have offshore owners.

Tripe says the RBNZ has been investigating the implications to New Zealand banks if one of their offshore parents collapses.

"The risk, to a large extent, is that we get left at the end of the chain and the Reserve Bank (of New Zealand) is trying to provide us with protection should something go wrong in Australia.

"The concern is really to make sure that the direct impact on us is not as great as it might otherwise be," he says.

On that note, Dinsdale says the key challenge for the RBNZ is to find an appropriate regulatory environment for the foreign-owned banks to operate within.

Ideally, he says, one where "either economic or financial shock in a registered bank's home country would not disable the New Zealand financial system."

Coming full circle, the foreign-owned banks - particularly the big five - are extracting as much profit from New Zealand as they can.

It is nigh impossible to definitively say which is best, and there are any number of benchmarks on which they might be judged.

Certainly, the banks' focus is firmly on their core business and the bottom line, much like old Arkwright.

In his case, the BBC's website says, the drive for profit "caused him to open the premises for longer and longer hours and to invent countless brilliant schemes to increase business."

So we have seen.

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