Shamubeel Eaqub: Simplicity Chief Economist on banks returning high profits with low levels of innovation

Banks are under pressure to deliver customers more value. 

ANZ's announced a 21% rise in annual profit days after Westpac confirmed a 13% rise. 

Finance Minister Nicola Willis says with bank profits this high, customers should be seeing breakthrough innovation or new technology. 

Simplicity Chief Economist Shamubeel Eaqub told Ryan Bridge we need our banks to be successful, but we also need them to compete for our business. 

He says we have a banking sector that's extraordinarily safe and profitable, but not very innovative, and we need to ask why we're paying so much for so little. 

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Episode Transcript

Speaker 1 (00:00):
It's bank profit watch time. A and Z's up twenty
percent two and a half billion. Last week, Westpac thirteen percent,
increased to one point one billion. Schama Jakob is Simplicity
chief economist with US this morning, Shama.

Speaker 2 (00:11):
Good morning, good morning.

Speaker 1 (00:13):
Are you buying the lines that are coming out of
Antonio Watson's mouth? Are you buying the lines from the banks.
The net interest margin is up well slightly, But when
you compare apples with apples with Australia, with their Australia business,
actually the difference is explained by capital requirements.

Speaker 2 (00:31):
Here, not really, because that net interest margin has been
higher than Australia for a very long time, and the
reason why that's high is because they pairs less on
oine deposits and charges more on our mortgages.

Speaker 1 (00:45):
If you look through the results for A and Z,
their cash profits up by four percent, which is the
same amount they've grown their balance sheet by.

Speaker 2 (00:56):
Exactly. So it's very much a story about their net
interest margins being pretty much the same, a small increase,
but it's really been that modest growth in lending and
deposits that's driving their profits.

Speaker 1 (01:08):
Is there a band thing, Well, the bad.

Speaker 2 (01:12):
Thing is how much they charge us. So we want
our banks to be profitable and safe, but not the
charge is an unreasonable amount. That was the reason why
we have the hearing that the Nicolobelas started. That's why
the Commerce Commission was meant to look at it. We
need to get serious about banking competition in New Zealand.
The problem for us is that we have a bank

(01:33):
banking sector that's extraordinarily safe, extraordinary profitable, not particularly innovative,
and we don't get products and services. Why are we
paying so much for so little?

Speaker 1 (01:44):
How much more are we paying than the rest of
the world.

Speaker 2 (01:48):
Much higher and so As you know, when the Commerce
Commission did that work, there was quite a lot of
argument around those metrics. But the reality is that the
New Zealand banking sector is one of the most profitable
in the ovciting and it is not one of the
most innovative. And the reality is that if we want
to if you are to pay higher prices, we should

(02:08):
get something in return for it, and we are not.
So we need to get serious about having much sharper teeth.
As the next inquiry of the banking sector, the current
one is not doing enough.

Speaker 1 (02:17):
Everyone goes on about competition. We've got twenty seven registered
banks in New Zealand. How many would make good competition.

Speaker 2 (02:25):
Well, it's not the apples for apples, because when you
look at building societies and others, those banks are regulated
very differently. They have very small bound sheets and they're
not particularly well performing. So we do need to have
the kinds of fintech tyche companies that are being real
challenges in Europe in particular. I think that's the kind
of competition we need to see in quite a big

(02:46):
way in New Zealand. We've got the beginnings of that
with things like open banking. That's only the beginning and
we need to really push ahead on that because clearly
New Zealand is a sector where financial services can do
very well. Why should not New Zealanders also receive good
products and services at the same.

Speaker 1 (03:03):
Time, Shamu was interesting. Appreciate your time, Shammo bon Jakop
Simplicity Chief Economists.

Speaker 2 (03:08):
For more from early edition with Ryan Bridge.

Speaker 1 (03:10):
Listen live to news Talks it'd be from five am weekdays,
or follow the podcast on iHeartRadio.