Pressure may be mounting for a broad inquiry into the banking industry following recent incidents involving the biggest trading bank in NZ.
Agriculture Minister Damien O’Connor said this week banks are “bullies” (according to a Radio NZ report). It’s a sentiment shared by many New Zealanders.
This sentiment has been rekindled by the departure of ANZ’s CEO David Hisco who, it had been found, passed off charges for chauffeur-driven cars and the cost of storing his wine collection as business rather than personal expenses.
ANZ suffered a couple of regulatory blows last month with the Reserve Bank forcing it to hold more capital against housing and farm lending from June 30 and to use the standardised model for calculating its operational risk capital (ORC) rather than its own internal model. That’s because it had been using a modified internal model for calculating ORC since December 2014 without first getting RBNZ approval.
Former BNZ chairman Kerry McDonald reckons that if the ANZ board is not capable of having systems and processes in place that identify problems of this nature – chief executive spending or the way risk is managed – “then you’ve got to have serious doubts about their ability to run a bank.”
So does NZ need the kind of Royal Commission into the banking industry that was mounted across the Tasman?
Politicians here may be wary of instituting an inquiry of that nature, not so much because it could take a couple of years to complete, but because with the economy slowing down in the face of global trading wars, NZ more than ever needs a strong banking system.
For example, the government only this week sought to protect heavily indebted farmers through a measure allowing them to ask for mediation before a bank foreclosed on loans. At nearly $63bn, total farm debt has risen 270% in the past 20 years and banks are said to be getting testy with those falling behind in loan repayments.
That statistic on farm debt is a measure of the vulnerability of the farm sector but also of the NZ economy if export markets go sour.
Kerry McDonald argues the Finance Minister should get directly involved, and it’s time the Reserve Bank showed it could regulate the sector effectively, or that there are wholesale changes at the central bank.
Prime Minister Jacinda Ardern, questioned at her post-Cabinet press conference, said the Hisco affair is an employment matter and the responsibility of the bank.
“Ultimately what we are talking about here are matters of personal integrity and employment matters. You would expect that those remain the responsibility of the board and the banks themselves. Both politicians and those who are leaders in high-profile organisations do need to continually focus on maintaining that integrity.“
As for whether the ANZ’s NZ chairman, Sir John Key, should step down (another point raised by Kerry McDonald), Ardern said the expenses issue had been acted on.
“As far as I can see the issue’s been raised, the board has acted on it and the CEO is no longer there. Ultimately, when it comes to this sector we need to see leadership from within as well. So those are matters for them – we know of course that we need to maintain similar standards in the political world as well.”
The fallout from the Hisco affair will certainly have an impact on a much broader issue. The Reserve Bank has been preparing to impose on trading banks a new requirement to double their capital levels and to disallow their Tier Two instruments from capital calculation.
Clearly the Australian-owned banks, the dominant element in the NZ trading bank system, were unhappy with this demand and have been pushing back hard against Reserve Bank governor Adrian Orr. The risk is the Australian banks could look at withdrawing new lending to NZ’s productive industries, particularly the agricultural and horticultural sectors.
Now the Hisco affair may have swung public perceptions even more heavily against the Aussie-owned banks.
So Adrian Orr, with that kind of public support to reinforce his policy, could forge ahead with his new capital regulation. But what then will be the response of the big bosses across the Tasman?
In this high-stakes poker game all we can do is hope the cards fall the right way.