It’s easy to get used to a good thing. It’s extremely hard to give that good thing up.
Small wonder then that the big banks in New Zealand are staying firmly put and not looking for greener pastures.
It’s reporting season for companies with a June balance date and some of the results in the banking sector are eye-popping, to say the least.
We have an economy under considerable post-pandemic pressure, a cost-of-living crisis and growing uncertainty surrounding the upcoming general election but these seemingly large barriers are little more than a small judder bar to heavy-hitters in the world of finance. The profits are posted in billions of dollars. And while a review of trading in more recent times does not compare favourably with the previous corresponding period, the overall earnings are still enormous by any measure.
The banks are adept at explaining why their numbers are what they are … massive.
They quote asset-to-earnings ratios before quickly moving on to other subjects, such as how important it is in a free-market economy to have a stable banking sector. I assume the level of revenues generated means we do indeed have a stable banking sector.
It has been like this for many years. I have a real sense of deja vu as I look through the most recent accounts and try not to shake my head. It’s the same old story. I’d be willing to wager my last dollar that the same balance-sheet situation will present itself at the same time next year.
But fret not if you, like me, struggle to understand why the levels of profitability are as high as they are; our white knight is here.
The Commerce Commission is currently doing a study of competition in the banking sector. That should sort it out.
I’m not sure exactly when or how comprehensively it will sort things out, but if the government has ordered said study, then it must be for a jolly good reason and we should confidently expect a strongly worded report should the study turn up anything untoward.
Interestingly, the big banks have loudly stated that they are cooperating fully with the Commerce Commission study. Cooperating as one group, possibly. I’m sure they all get on very well.
Before then, some very nervous mortgage holders are calculating how much more they will pay each month when they renew terms.
ASB said this week that it was preparing for higher interest rates to take a heavy toll on borrowers. It has put $600 million aside as cover.
Almost half of the bank’s home loan customers are yet to roll over onto interest rates above 6 per cent.
The Reserve Bank has steadily hiked the official cash rate since October 2021 to 5.5 per cent now. The average interest rate mortgage holders pay banks has increased from 2.84 per cent in October 2021 to 5.07 per cent in June.
For someone with a $500,000, 30-year mortgage, that jump would’ve increased their repayments by $148 to $624 per week.
That has to sting. For some homeowners, it will mean losing their homes.
