November 10, 2025 • 10 mins
The boss of our largest bank says its latest rise in profit doesn't tell the full story.
ANZ New Zealand's annual profit has reached a new record high of $2.53 billion – up 21% on last year.
That compares to a 13% rise for Westpac and no major change for BNZ and ASB.
But Chief Executive Antonia Watson told Mike Hosking when you exclude the bank's hedging investments, cash profit isn't rising nearly as fast.
She says that headline growth in a cost of living crisis is very uncomfortable, but underlying profit is only up 4%.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
So it's being profit time again Westpac last week. An
Z First cab off the rank this week and the
number is a large net profit of two point five
three billion, which is up over twenty percent. And Tonio
Watson is the am Z CEO and is with us.
Good morning to.
Speaker 2 (00:12):
You, Good morning mate.
Speaker 1 (00:14):
In general, how comfortable are you talking about numbers this size.
Speaker 2 (00:19):
In general? When you think about the context of our
size in New Zealand, they are very big numbers and
a headline growth in a cost of living crisis of
twenty percent is very uncomfortable. And I think it's just
trying to get the cut through that that headline number
has caused by a whole lot of accounting noise around
our around valuing our derivatives, and the actual underlying number
(00:41):
is four percent.
Speaker 1 (00:42):
Right, the margin is up three basis points to two
point six So how do you defend that?
Speaker 2 (00:49):
So, I mean, one way of looking at it is
that we've had to put in one point two billion
dollars of extra capital this year as we are meeting
the new capital requirements. That comes at a cost to
us other things being equal of ten percent, sorry ten
basis points. So a three basis point increase in margin
to me means that our shareholders are wearing part of
(01:10):
the pain of the additional capital as well, and I
think that's on balance, is probably fair.
Speaker 1 (01:15):
The RB rewrited these rules, are they going to help
you out materially and there for us or not?
Speaker 2 (01:20):
Not materially? They RB have put out two proposals. The
first one has a little bit more of the most
expensive form of form of capital, which is common actually
tier one in it, and the second one has more
overall capital, so the actual So the capital changes put
upward pressure on pricing. If you want to maintain your
(01:41):
returns the same, there isn't much difference in that upward
pressure given those two options.
Speaker 1 (01:48):
So this is a r B wheelhouse. But Niccola Willis
wanted to rewrite and she wanted something a bit better.
Has she lost that battle? Then?
Speaker 2 (01:55):
Look, it's still under consultation and so we've put up
a third proposal, which thinks really balanced, and it's under
consultation and where we are anxiously awaiting the results.
Speaker 1 (02:05):
So what's your proposal?
Speaker 2 (02:07):
Our proposal is to align with the Australian proposal. They're
also they're also changing their capital models Australia and New
Zealand have two of the most the highest capital ratios
in the world even currently when you align them on
an international basis. But we think that there's some efficiencies
not just with banking but in general if we align
as much to Australia as possible, and if we did
(02:30):
that we would there will be less there'll be less
upward pressure and prices, but also we would still be
maintaining a more conservative capital stance because there is some
more conservatism in our underlying calculations the way we do
it in New Zealand. So we feel like it's a
balanced option.
Speaker 1 (02:46):
So we'll see what's your read on whether you're going
to get any cut through on that. I don't know.
Speaker 2 (02:52):
I don't know. I mean, the Reserve Bank have actually
been very very open. They've been listening through the consultation.
They've been very clear that they want everyone's views. So
we'll see where that goes.
Speaker 1 (03:02):
How much of this conservatism around the amount of money
you've got to put a side is based on the
fact we're small and therefore allegedly fragile. Is that part
of it or not?
Speaker 2 (03:10):
Look, Mike, I completely agree that we are smaller we're distant.
We don't have some of the advantages that say Australia
has with the mining. We don't have a huge market
on our doorstep. We have weather events. So I can
completely understand that we should hold more capital in our
banking system than maybe some other countries. But the question
is how much more? And we are already right now
(03:31):
without any more capital going in. Oliver Woman did some
work for to arb and Z and we're already the
second highest in the world without the extra capital that's
still going to go in over the next few years.
Speaker 1 (03:42):
But you still maintain that if that number was significantly lower,
your margin would be lower, and therefore they are directly linked.
Speaker 2 (03:51):
Not lower. So the thing to really remember is that
this is capital that we'll go in in the future.
So the offset is less output pressure on price itself.
We have to put less capital in in the future,
there's less output pressure on prices in order to maintain
you know, the modestly above cost of capital returns that
we have at the moment, which is what we need
to deliver to our shareholders for them to invest twenty
(04:12):
billion dollars in New Zealand.
Speaker 1 (04:14):
Yeah, but two point six is higher than Australia. This
is the great quandary that people keep asking me to
ask you about. And the argument has always been, oh,
but here we have to put so much more money
aside because there are RB tells us. Is that no
longer your argument?
Speaker 2 (04:26):
Yeah? No, no. So if you think about our overall
margin at two point six that's for our sort of
retail and commercial businesses, that compares to our Australian retail
and commercial business has added together a two point thirty nine,
so a twenty one basis point difference that is more
than accounted for. If you look at the Oliver Wyman
difference in capital between Australia and New Zealand, that difference
(04:47):
is probably a cost of say thirty basis points. So
that's more than accounted for by the extra capital we
have here.
Speaker 1 (04:52):
Okay, do you still what does it feel like running
a successful business which you in disputably are and have
a fine Nance minister constantly at you.
Speaker 2 (05:03):
Look, she does her job and I do mine, and
we try and run a really strong, safe, trusted bank
for New Zealanders. The government's role is to make sure
that New Zealanders get the best deal they possibly can
out of all the industries in New Zealand.
Speaker 1 (05:15):
Do you think we are all have a genuinely open
and competitive banking market for the average punter to get
a good deal.
Speaker 2 (05:22):
With Yes, I do. I mean yes, one hundred percent.
Our staff are out there every day competing to win
business and competing hard. We are looking at what our
competition are doing constantly.
Speaker 1 (05:33):
SBS they hoovered up six thousand customers in the last year.
Is that proof that there is competition and therefore people
can move and will move if the deals are good.
Speaker 2 (05:43):
Absolutely. We've seen an average in some months it's been
more an average of twenty five percent of homelan customers
switching within the industry over the last year. So twenty
five percent of people switching every time their homeland's up
for prefixing.
Speaker 1 (05:57):
I think that's huge, right Ed McKnight The Opes Partners
thing that he's done on banks and their interest rates, No,
I don't all right. It doesn't matter that the upshot
is he looked at over a period of time as
to who was first out of the blocks in terms
of offering the best rate. B and Z seems the
best along with Westpac. You get there eventually on the
(06:18):
longer term, money the point being is once you shake
it all down, you guys are all the same at
the end of the day. And this backs up Nicola
Willis's argument, at the end of the day, it's all
the same. There is no real competition.
Speaker 2 (06:31):
It's interesting because as someone puts rates down, others will follow.
That's a very competitive market. But the suggestion there is
once everyone matches us, we should continue putting them down.
And then everyone matches and continue putting them down, and
then there comes a point that it's unsustainable and we
don't therefore have the returns that mean that we're comfortable
to keep lending to Kiwi. So the sort of a
the sort of a you know, do we want a
vicious cycle to the bottom or that will mean we
(06:52):
have less strong and stable than sustainable banks.
Speaker 1 (06:54):
Yeah, but so am I? Am I a simpleton? So
just back to that business. All I've seen through the
GFC and through COVID is you guys, generally the big
four here are fantastically successful and profitable, and well done
to you for that. Why do you need to put
any money aside? You know what you're doing.
Speaker 2 (07:12):
You know that we have had The GFC wasn't an
existential crisis in New Zealand, it certainly was in other
parts of the world. I mean, that's why I'd say
that we you know, we are well capitalized. We've done
a lot since the GFC, but don't forget that in
COVID we our profit drop thirty percent and the GFC
we had one year we made one hundred and ninety
million dollars and that's a lot less than right now.
So you know, when those real crises, you see bank
(07:33):
profits drop a lot, and so we need to be
ready and have a good capital base to protect us
from those real crises.
Speaker 1 (07:39):
How many people you got working in your bank at
the moment who come to you in your office periodically
and go, this AI tech thing is going to blow
and that might have some sort of bottom line effect
for us.
Speaker 2 (07:49):
We talk about ALI a lot. It's got a lot
of uses. We also want to be very cautious that
we don't let something loose that you know, hallucinates for
our customers. So you know, it's exciting, but I guess
it's exciting, but with absolute caution around it.
Speaker 1 (08:05):
Explain to me the insolvency numbers we covered yesterday and
I can't remember who did it. But insolvencies are up
forty percent, the money you've put aside for bad debt
is down. How can the two be true?
Speaker 2 (08:16):
Yeah, because we will have provided so any of our
customers that are in that group of customers that are
looking like the approaching insolvency, we would have probably provided
for them in the past, not this year, because we'll
be looking at our results, looking at what the economy
is looking like. We sort of take a forward view
of the economy and we tend to provide what we
(08:37):
call collective provision upfront, which is just what's the risk
in our book of things happening. So we'd have already
provided for that.
Speaker 1 (08:44):
How bullish for twenty six are you for New Zealand's inc.
Speaker 2 (08:47):
Oh, I'm cautiously optimistic. There are some green shoots out there.
It's still tough, there's no question about that. It's particularly
tough in places like Auckland and Wellington, say, compared to
the South Island. Doesn't christ Church recently and that was
pretty pretty exciting place at the moment. Actually, I think
you're seeing some of the rural economy impact coming through
(09:08):
flowing through to the cities. But there's some real there
are some actual real positives. If you think about the
pain of the last few years, it's also sort of
cleared the decks for the next up swing. So we've
got real house prices, they've unwhelmed the COVID bubble. We've
got household and firm debt lower than it was pre
COVID as a share of GDP. We've got inflation hopefully
(09:29):
hopefully touchwood under control. We've got imports reducing, exports growing.
So there's a lot of our card data showing that
a lot of the categories are now spending is up
to So that's people just getting a little bit more
confidence to spend now rather than to sort of re
establish their buffers, which is I think what they've been
doing as interest rates been coming down to date. So
I think, you know, cautiously optimistic.
Speaker 1 (09:50):
Good to talk to, you appreciate it as always an
Tonio Watson, who's the boss of the a m Z.
Speaker 2 (09:55):
For more from the MI Casking Breakfast, listen live to
news talks there'd be from six ing weekdays, or follow
the podcast on iHeartRadio.
So it's being profit time again Westpac last week. An
Z First cab off the rank this week and the
number is a large net profit of two point five
three billion, which is up over twenty percent. And Tonio
Watson is the am Z CEO and is with us.
Good morning to.
Speaker 2 (00:12):
You, Good morning mate.
Speaker 1 (00:14):
In general, how comfortable are you talking about numbers this size.
Speaker 2 (00:19):
In general? When you think about the context of our
size in New Zealand, they are very big numbers and
a headline growth in a cost of living crisis of
twenty percent is very uncomfortable. And I think it's just
trying to get the cut through that that headline number
has caused by a whole lot of accounting noise around
our around valuing our derivatives, and the actual underlying number
(00:41):
is four percent.
Speaker 1 (00:42):
Right, the margin is up three basis points to two
point six So how do you defend that?
Speaker 2 (00:49):
So, I mean, one way of looking at it is
that we've had to put in one point two billion
dollars of extra capital this year as we are meeting
the new capital requirements. That comes at a cost to
us other things being equal of ten percent, sorry ten
basis points. So a three basis point increase in margin
to me means that our shareholders are wearing part of
(01:10):
the pain of the additional capital as well, and I
think that's on balance, is probably fair.
Speaker 1 (01:15):
The RB rewrited these rules, are they going to help
you out materially and there for us or not?
Speaker 2 (01:20):
Not materially? They RB have put out two proposals. The
first one has a little bit more of the most
expensive form of form of capital, which is common actually
tier one in it, and the second one has more
overall capital, so the actual So the capital changes put
upward pressure on pricing. If you want to maintain your
(01:41):
returns the same, there isn't much difference in that upward
pressure given those two options.
Speaker 1 (01:48):
So this is a r B wheelhouse. But Niccola Willis
wanted to rewrite and she wanted something a bit better.
Has she lost that battle? Then?
Speaker 2 (01:55):
Look, it's still under consultation and so we've put up
a third proposal, which thinks really balanced, and it's under
consultation and where we are anxiously awaiting the results.
Speaker 1 (02:05):
So what's your proposal?
Speaker 2 (02:07):
Our proposal is to align with the Australian proposal. They're
also they're also changing their capital models Australia and New
Zealand have two of the most the highest capital ratios
in the world even currently when you align them on
an international basis. But we think that there's some efficiencies
not just with banking but in general if we align
as much to Australia as possible, and if we did
(02:30):
that we would there will be less there'll be less
upward pressure and prices, but also we would still be
maintaining a more conservative capital stance because there is some
more conservatism in our underlying calculations the way we do
it in New Zealand. So we feel like it's a
balanced option.
Speaker 1 (02:46):
So we'll see what's your read on whether you're going
to get any cut through on that. I don't know.
Speaker 2 (02:52):
I don't know. I mean, the Reserve Bank have actually
been very very open. They've been listening through the consultation.
They've been very clear that they want everyone's views. So
we'll see where that goes.
Speaker 1 (03:02):
How much of this conservatism around the amount of money
you've got to put a side is based on the
fact we're small and therefore allegedly fragile. Is that part
of it or not?
Speaker 2 (03:10):
Look, Mike, I completely agree that we are smaller we're distant.
We don't have some of the advantages that say Australia
has with the mining. We don't have a huge market
on our doorstep. We have weather events. So I can
completely understand that we should hold more capital in our
banking system than maybe some other countries. But the question
is how much more? And we are already right now
(03:31):
without any more capital going in. Oliver Woman did some
work for to arb and Z and we're already the
second highest in the world without the extra capital that's
still going to go in over the next few years.
Speaker 1 (03:42):
But you still maintain that if that number was significantly lower,
your margin would be lower, and therefore they are directly linked.
Speaker 2 (03:51):
Not lower. So the thing to really remember is that
this is capital that we'll go in in the future.
So the offset is less output pressure on price itself.
We have to put less capital in in the future,
there's less output pressure on prices in order to maintain
you know, the modestly above cost of capital returns that
we have at the moment, which is what we need
to deliver to our shareholders for them to invest twenty
(04:12):
billion dollars in New Zealand.
Speaker 1 (04:14):
Yeah, but two point six is higher than Australia. This
is the great quandary that people keep asking me to
ask you about. And the argument has always been, oh,
but here we have to put so much more money
aside because there are RB tells us. Is that no
longer your argument?
Speaker 2 (04:26):
Yeah? No, no. So if you think about our overall
margin at two point six that's for our sort of
retail and commercial businesses, that compares to our Australian retail
and commercial business has added together a two point thirty nine,
so a twenty one basis point difference that is more
than accounted for. If you look at the Oliver Wyman
difference in capital between Australia and New Zealand, that difference
(04:47):
is probably a cost of say thirty basis points. So
that's more than accounted for by the extra capital we
have here.
Speaker 1 (04:52):
Okay, do you still what does it feel like running
a successful business which you in disputably are and have
a fine Nance minister constantly at you.
Speaker 2 (05:03):
Look, she does her job and I do mine, and
we try and run a really strong, safe, trusted bank
for New Zealanders. The government's role is to make sure
that New Zealanders get the best deal they possibly can
out of all the industries in New Zealand.
Speaker 1 (05:15):
Do you think we are all have a genuinely open
and competitive banking market for the average punter to get
a good deal.
Speaker 2 (05:22):
With Yes, I do. I mean yes, one hundred percent.
Our staff are out there every day competing to win
business and competing hard. We are looking at what our
competition are doing constantly.
Speaker 1 (05:33):
SBS they hoovered up six thousand customers in the last year.
Is that proof that there is competition and therefore people
can move and will move if the deals are good.
Speaker 2 (05:43):
Absolutely. We've seen an average in some months it's been
more an average of twenty five percent of homelan customers
switching within the industry over the last year. So twenty
five percent of people switching every time their homeland's up
for prefixing.
Speaker 1 (05:57):
I think that's huge, right Ed McKnight The Opes Partners
thing that he's done on banks and their interest rates, No,
I don't all right. It doesn't matter that the upshot
is he looked at over a period of time as
to who was first out of the blocks in terms
of offering the best rate. B and Z seems the
best along with Westpac. You get there eventually on the
(06:18):
longer term, money the point being is once you shake
it all down, you guys are all the same at
the end of the day. And this backs up Nicola
Willis's argument, at the end of the day, it's all
the same. There is no real competition.
Speaker 2 (06:31):
It's interesting because as someone puts rates down, others will follow.
That's a very competitive market. But the suggestion there is
once everyone matches us, we should continue putting them down.
And then everyone matches and continue putting them down, and
then there comes a point that it's unsustainable and we
don't therefore have the returns that mean that we're comfortable
to keep lending to Kiwi. So the sort of a
the sort of a you know, do we want a
vicious cycle to the bottom or that will mean we
(06:52):
have less strong and stable than sustainable banks.
Speaker 1 (06:54):
Yeah, but so am I? Am I a simpleton? So
just back to that business. All I've seen through the
GFC and through COVID is you guys, generally the big
four here are fantastically successful and profitable, and well done
to you for that. Why do you need to put
any money aside? You know what you're doing.
Speaker 2 (07:12):
You know that we have had The GFC wasn't an
existential crisis in New Zealand, it certainly was in other
parts of the world. I mean, that's why I'd say
that we you know, we are well capitalized. We've done
a lot since the GFC, but don't forget that in
COVID we our profit drop thirty percent and the GFC
we had one year we made one hundred and ninety
million dollars and that's a lot less than right now.
So you know, when those real crises, you see bank
(07:33):
profits drop a lot, and so we need to be
ready and have a good capital base to protect us
from those real crises.
Speaker 1 (07:39):
How many people you got working in your bank at
the moment who come to you in your office periodically
and go, this AI tech thing is going to blow
and that might have some sort of bottom line effect
for us.
Speaker 2 (07:49):
We talk about ALI a lot. It's got a lot
of uses. We also want to be very cautious that
we don't let something loose that you know, hallucinates for
our customers. So you know, it's exciting, but I guess
it's exciting, but with absolute caution around it.
Speaker 1 (08:05):
Explain to me the insolvency numbers we covered yesterday and
I can't remember who did it. But insolvencies are up
forty percent, the money you've put aside for bad debt
is down. How can the two be true?
Speaker 2 (08:16):
Yeah, because we will have provided so any of our
customers that are in that group of customers that are
looking like the approaching insolvency, we would have probably provided
for them in the past, not this year, because we'll
be looking at our results, looking at what the economy
is looking like. We sort of take a forward view
of the economy and we tend to provide what we
(08:37):
call collective provision upfront, which is just what's the risk
in our book of things happening. So we'd have already
provided for that.
Speaker 1 (08:44):
How bullish for twenty six are you for New Zealand's inc.
Speaker 2 (08:47):
Oh, I'm cautiously optimistic. There are some green shoots out there.
It's still tough, there's no question about that. It's particularly
tough in places like Auckland and Wellington, say, compared to
the South Island. Doesn't christ Church recently and that was
pretty pretty exciting place at the moment. Actually, I think
you're seeing some of the rural economy impact coming through
(09:08):
flowing through to the cities. But there's some real there
are some actual real positives. If you think about the
pain of the last few years, it's also sort of
cleared the decks for the next up swing. So we've
got real house prices, they've unwhelmed the COVID bubble. We've
got household and firm debt lower than it was pre
COVID as a share of GDP. We've got inflation hopefully
(09:29):
hopefully touchwood under control. We've got imports reducing, exports growing.
So there's a lot of our card data showing that
a lot of the categories are now spending is up
to So that's people just getting a little bit more
confidence to spend now rather than to sort of re
establish their buffers, which is I think what they've been
doing as interest rates been coming down to date. So
I think, you know, cautiously optimistic.
Speaker 1 (09:50):
Good to talk to, you appreciate it as always an
Tonio Watson, who's the boss of the a m Z.
Speaker 2 (09:55):
For more from the MI Casking Breakfast, listen live to
news talks there'd be from six ing weekdays, or follow
the podcast on iHeartRadio.
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