Corin Dann: Banks in the spotlight as profits surge and interest rate decision due

New Zealand’s banking sector will be thrust into the public spotlight on Monday when the Reserve Bank and Financial Markets Authority issue their much anticipated report into the conduct and culture of our banks.

Their report is a direct response to the horror stories that emerged earlier this year from the Australian Royal Commission of Inquiry into Banking.

Most of our big banks are Australian owned.

It's hard to judge how significant the New Zealand report will be. Initially it seemed that there was little desire from our regulators for any sort of inquiry along the lines seen in Australia.

When I asked Reserve Bank Governor Adrian Orr about the issue earlier this year he downplayed the need for an inquiry, suggesting New Zealand’s financial services sector didn’t share the same sort of culture as in Australia.

Banking experts I spoke to also seemed to think there was not a huge need for an inquiry.

However, a few weeks after I spoke to Mr Orr the RBNZ and FMA did decide that an investigation - albeit one on a much smaller scale - was needed to reassure Kiwis that our Banks were operating properly. 

Their starting point was to write to all our banks and ask them to prove that they are better behaved than their Australian parent banks.

The review findings come at an interesting time for the big banks, as they are also facing renewed media scrutiny over their booming profits.

ANZ posted a nearly $2 billion profit this week, while BNZ made $1 billion.

The review also comes at an interesting time for the Reserve Bank.

This week the Government announced the second phase of its review of the Reserve Bank Act, with a particular focus to go on whether the RBNZ should retain its banking supervision role or whether there might be a need to be create a standalone operator.

Adrian Orr
Adrian Orr Source: 1 NEWS

OCR

Amongst all of this activity the Reserve Bank will also have to make a call next week on the Official Cash Rate.

No one is expecting the Bank to change the rate from its current rate of 1.75 percent. 

Most interest will be around what sort of signal it sends about the health of the economy and whether interest rates need to stay lower for longer.

Some economists are now speculating that the next move when it comes will have to be a cut.

Because while growth is still tracking around the 3 percent, thanks to strong commodity prices and increased consumer spending from the Families package, there are plenty of headwinds starting to appear on the horizon. Among those are prolonged low business confidence, global trade wars, and spiking petrol prices.

As for the Reserve Bank's loan-to-value ratios aimed at curbing low deposit lending, will we see them lifted this week?

Well Mr Orr did hint earlier this year that he would be looking at them about now.

However it's more likely he will announce a move on these at the end of the month when the Reserve Bank also releases its latest six monthly financial stability report.

Two of the big players have just posted huge profits leading to questions about customer charges. Source: Seven Sharp