Competition
creates a stable, sound and prudent financial sector, to the good of
business
ost
of New Zealand’s banks are foreign-owned and several were founded
in Australia during the mid-19th century Gold Rush. But, still, the
sector is very strong, highly innovative and geared to serving a diverse
market.
Some institutions are geared towards retail and personal banking, some
have a major interest in rural finance and others specialise in trade
and investment. At least one stays open seven days a week, something
which might be welcomed in the UK.
There are 18 banks in the country, but only two are domestically-owned.
Donald Brash, former governor
of the Reserve Bank of New Zealand, the central bank, says he has often
been asked what he feels about most of the banks being foreign owned.
“The central bank governor wants three things from the banking
sector. He wants a stable, sound and prudent sector, and we have that.
And he wants a very innovative sector, and we’ve got that. So,
what else do we want?
“Frankly, in a small economy, you cannot have a competitive, innovative
and sound banking system based on domestic institutions. You don’t
have the scale to finance the innovation and you don’t get the
competition. So you need significant foreign involvement in the banking
sector and from my point of view, New Zealand has significantly benefited
from that.”
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Gallagher
‘The
parent organisation gives us more strength in the broader
economy’
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The
Reserve Bank was modelled on the Bank of England, although it was founded
only in 1934. In the late 1980s the banking sector was restructured
and the Reserve Bank diverged from the Bank of England model, gaining
substantial independence, although decisions are still made by the government.
WestpacTrust
is one bank with its roots in the Australian Gold Rush, when the Bank
of New South Wales (NSW) crossed the sea to establish a branch. In 1982,
the Commercial Bank of Australia and the Bank of NSW merged in Australia
and, in New Zealand, Westpac was born. In 1996, Westpac acquired Trust
Bank and the newly-created institution became WestpacTrust.
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Brash
‘New
Zealand has benefited significantly from foreign involvement’
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Chief
executive Tom Gallagher says
that the merger with Trust Bank was a big one by New Zealand standards.
WestpacTrust’s mission has been to redefine itself as a customer-driven
organisation and to this end a special unit, WestpacTrust Investments,
was established in 1999 to issue shares in the company.
“We wanted to give our Kiwi custo-mers and other New Zealanders
the opportunity to have a share, which is essentially a share in the
Sydney-based corporation,” he says. A share bought in 1999 for
$11.75 is now worth more than $18.
Mr Gallagher adds: “You can’t divorce our narrow-based economy
from the financial sector because the financial sector is a critical
part of the economy. It is one of the reasons why almost all of the
banks are foreign-owned.
“This is absolutely critical because we have got the strength of
the much larger parent organisation, which is much bigger than if the
banks had been simply New Zealand domestic banks. So they have a very
powerful position within the broader economy.”
WestpacTrust
reported record profits of $465 million last year, an increase of 14
per cent on the previous year. Mr Gallagher says the bank is focusing
on “private and priority banking”.
“A lot of the focus is now on ‘mobile mortgages’,”
he says. “If you want a loan, we’ll go to your house and at
the same time talk about insurance.
“It’s always been a Kiwi thing to own your own house. But
we also agree that people need to think carefully about their investment
portfolio, which should not just be based on property. Our role in life
is to meet customer needs and in some areas provide them with sound
advice.”
At the Bank of New Zealand (BNZ), which was the country’s reserve
bank for a period of time, managing director Peter Thodey says: “I
believe the quality of the financial structure here is up with the best
in the world. In terms of growth, we have had a tremendous eight or
nine years.”
BNZ is part of the National Australia Bank (NAB) group. “Having
such a strong shareholder has been an advantage for us in terms of attracting
investment,” says Mr Thodey. “Certainly, our rating is a great
advantage for us and, in particular, for foreign investors.
“The
NAB is noted for its customer relations management. We have actually
leveraged that into New Zealand and we are going to see some great results
coming from that.”
BNZ will continue to maintain a substantial branch network. “There
is still a significant element of the population, particularly older
people, who have deposit accounts and want to continue using branches,”
adds Mr Thodey. “So we have got to provide access for them. Customer
service is a key issue for banks and it is high on our priority list.”
BT Funds Management, bought out by US group Principal Financial Services
in 1999, is a success story in New Zealand. The company commenced business
there in 1987 and today manages more than $2.2 billion on behalf of
30,000 Kiwis.
Chief
executive Craig Stobo forecasts that the New Zealand economy will grow
by between two and three per cent this year and on the back of this
investments will rise. He cites telecoms, finance and agriculture, along
with agriculture-related businesses such a biotechnology, as good investment
areas.
“These are quite exciting sectors in terms of the partnerships
that have developed between the universities, which have this wealth
of knowledge and research, and the private sector,” he adds.