The PEC backs Federated Farmers call for Bank costs transparency
The PEC is delighted to see Federated Farmers requesting more transparency with bank costs, joining the diverse group of organisations calling for a re-evaluation of the makeup of bank operating profits in the current climate.
“Federated Farmers CEO Conor English has called for banks to play their part in helping us all get through the current economic situation, and he’s right,” says PEC Spokesman Selwyn Pellett.
“Governments all over the world are coming to the aid of banks and it’s now a moral obligation that banks come to the aid of the economies they serve in an honest and even handed manner,” says Pellett.
“Despite the adverse conditions currently affecting retailers and exporters alike, the Bank of New Zealand’s profits soared to $260 million in the three months to December 31, up from $171m in the same period last year,” says Pellett. “This bears out Conor English’s assertion that for our main banks the costs may not be as great as some may think.”
“A quick review of the latest results from the major banks indicates that operating profits are up but that this is being masked by high levels of bad debt provisions or abnormal accounting variances,” says Pellett. “While the rapid adjustment from a high OCR to a low OCR has caught a few banks short, temporarily lowering their lending margins, this will wash through in the following months,” he says.
“While we would all like to repair the damage done to our balance sheets from the effects of the recession, it should not be at the risk of increasing the scale of the recession or delaying its recovery,” says Pellett
“The banks will suffer as much as the rest of us if the recession is extended. Some of the provisions they are taking now might be unnecessary if interest rates were speedily adjusted to current borrowing conditions instead of holding them at what has rapidly become unrealistic levels,” he says.
The PEC applauds the efforts of the ASB and hopes its leadership in this area will encourage other banks to take similar positive steps.
“I am sure the ASB has multiple reasons for setting up its billion dollar fund but the logic of no jobs, no wages, no ability to pay mortgages, increasing of bad debts and no ability to recover defaulting mortgages is very compelling,” says Pellett”.
“The only thing we need more urgently than the ASB’s billion dollar fund for productive employment retention is for the banks to negotiate bank break fees,” says Pellett.
“At an estimated $30 to $70 million a week going into the economy I will be surprised if any other stimulus package suggested can match the impact of this, both in terms of speed of implementation and, more importantly, in its ability to restore confidence to the general public. The fixed term break fees need the same transparency as all other fees being charged by the banks. At the very least when the dust settles a standard break fee formula should be agreed and set”, he says.
“Banks don’t want debate about these issues. But we are all making sacrifices in this climate and the debate needs to be had, and it needs to stay focused on what is good for our economy and the well being of our population,” says Pellett.