Union backs Kiwibank's attack on big four's profits

State-owned Kiwibank got union support today for an attack on the four major banks, which chief executive Sam Knowles said were making excessive and unsustainable profits.

Finsec, the bank workers' union, said the combined profit of $2.5 billion dollars by the Australian-owned banks was "way too much".

"These profit levels mean there is a significant outflow of hard earned New Zealand dollars to Australian shareholders and a fundamental under-investment in the banks' New Zealand-based staff and infrastructure," said Andrew Campbell, Finsec campaigns director.

"The enormous profits come at the expense of customers and bank staff. Customers face high fees and constant sales pitches and bank staff are increasingly finding bank wages and conditions uncompetitive."

Finsec said that despite ANZ National, the country's largest bank making a $917 million profit last year, it baulked at a 5 per cent pay claim.

"The gap between its offer and the workers' claim is less than 4/1000ths of last year's profit," Mr Campbell said.

Mr Knowles said the Australian-owned banks were earning a return on assets in the mid-20 per cent range while Kiwibank earned 10.7 per cent despite doubling its June year net profit to $15.8 million.

"We don't believe that the current level of profitability in our competitors is either desirable or sustainable," he said.

Massey University banking professor David Tripe once said any bank's return on total assets (including deposits) over 1 per cent was excessive.

But ASB chief executive Hugh Burrett said last month when the Commonwealth Bank of Australia-owned bank reported a $400m annual profit, that a 1 per cent return on assets was typical for banks and a lower level would mean a bank was not performing.

"I don't believe we are making such a huge profit given the capital employed in the business," he said.

ASB's return on total assets was unchanged at 1.1 per cent in the June year.

"Any business has to make a reasonable return on its capital. If it doesn't, then the shareholder doesn't get rewarded, nor do the staff and the customer doesn't get great service," Mr Burrett said.

Finance Minister Michael Cullen said Kiwibank's success should be measured in more than just commercial terms.

The bank was set up as part of Labour's deal with the Alliance Party to form a government following the 1999 election.

Dr Cullen was sceptical about the investment needed at the time, but said yesterday he was not surprised by the bank's commercial success.

"What has been particularly pleasing is... the level of public support which has been very high... but also the impact it has had on the other banks in terms of fees," Dr Cullen said.

"Undoubtedly Kiwibank paid back its government investment quite early on, in some senses, in terms of its impact on the public banking fees."

Kiwibank is still in a growth phase, adding over 2000 customers a week, and banking analysts expect its profits to rise as it matures.

"As our profits increase, we will expect to be self-sustaining, but it's still a couple of years away," Mr Knowles said.

- NZPA