Friday 10th November 2000
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But the Kiwi Bank needs to be well planned, says PETER V O'BRIEN
It was probably a coincidence the government took another step this week toward setting up a Kiwi Bank, known as the "people's bank," a few days after the three Australian-based banks that have most of the country's banking business announced their results for the year ended September 30.
They had good profit gains, with two - National Australia Bank (NAB) and Westpac - doing better in percentage terms than in 1999 with Australia & New Zealand Banking Group (ANZ) showing a lower increase.
ANZ's 1999 profit, after adjustments for accounting changes, was 18.8% above 1998, compared with 12.3% for NAB and 8.5% for Westpac.
The latest figures, share price information and cost/income ratios for the year are shown in the table.
Cost-to-income ratios are a measure of a bank's efficiency. A reduction in the percentage indicates efficiency has improved and a rise shows a slip.
It was noted in The National Business Review, May 19 when ANZ chief executive John McFarlane said his bank had a new goal of a cost-income ratio "comfortably below" 50%.
There can be a problem with such goals because they can be reached only through lowering expenses, increasing income or both.
Lifting net interest income can be difficult in periods when banks' margins between lending and borrowing rates are squeezed, as has been the case in recent years.
Cutting expenses has a limit, although branch closures, staff redundancies and emphasis on technology can help.
Bank executives might dream of running banks without people working at counters but the reality is different, particularly as customers have become more vociferous about service.
Efficiency can also be increased if the banks lift their "other income," an income category that includes those fees Deputy Prime Minister Jim Anderton has protested about and were apparently a major reason for his idea of the People's Bank.
The bank is supposed to be in operation next year, although there are still some unanswered questions about where the capital and operating funds are coming from.
There seems to be some confusion in the media on that subject and the distinction between the two items.
Gross revenue finances operating costs in a business that is a going concern. Capital can be used to cover startup costs and operating expenses until a new business generates sufficient gross revenue and profit to stand alone.
A new business cannot continue to use capital for expenses indefinitely because it would result in insolvency.
Assuming the people's bank will be a registered bank it would come within the scope of the Reserve Bank's supervisory regime which presumably would keep an eye on capital adequacy ratios.
The amount of money needed to get the bank going and see it through its early days has been speculated about but has not been finally released as part of New Zealand Post's business plan and its independent assessment.
It can be assumed thorough, sensibly based work has been done on the proposal to ensure some half-baked scheme is not put in place to fall over in due course.
A bank failure is the last thing New Zealand needs. The second-last is an eventual government-funded bailout.
The country has had two of those, in both cases involving the Bank of New Zealand. The first was in the 1890s and the second in 1990.
The preliminary reports from the Australian banks show what banks have to do to maintain or increase profitability through keeping control of expenses, irrespective of arguments about customer fees and service.
They also provide a reason for the main three operators enjoying good share prices on the Australian Stock Exchange, as shown in the table.
Westpac chief executive David Morgan said his bank was seeing the combined benefits of strong revenue growth and its performance enhancement programme.
Dr Morgan said Westpac's "cost competitiveness" im-
proved sharply with like-for-like expenses being held flat.
More than $A317 million of run rate expense reductions had been achieved through cost reduction programmes as at September 30.
Dr Morgan said that was "tracking slightly ahead" of the $A300 million he outlined in October last year.
ANZ's chairman Charles Goode said his bank's result was the outcome of three years of hard work reinvigorating the organisation. Chief executive John McFarlane made similar comments.
New Zealanders will be hoping they do not read at some future time of the People's Bank having to be reorganised and/or reinvigorated.
|Australian banks' statistics year ended 30.9.00|
|% change||Share price|
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