Expert defends banks after Prime Minister Jacinda Ardern questions large profits

A university professor has defended two of New Zealand's biggest banks after they came under fire from the Prime Minister for making a large profit.  

New Zealand's 27 banking companies posted before-tax profits of $9.7 billion in the 12 months to June. 

This week it was announced Westpac posted a billion-dollar full-year profit, rising 12 percent, while ANZ recently posted $2.3 billion, up 20 percent. 

Prime Minister Jacinda Ardern said she doesn't think it's "justifiable" the amount of profits banks are making. 

"This is not what I would argue is a one-off. We've seen this consistently, them posting significant profits. I think questions need to be asked to managers of these banks as to whether or not they are serving their communities well," Ardern said at her weekly post-Cabinet press conference.

She challenged banks to look at their own policies and reflect on whether they were doing the right thing. 

"The question I would pose to them is they may be operating as other banks are, but are they demonstrating social license?

"Are they demonstrating commitment to the communities they're serving by taking profits such as those in these current times?"

Massey University professor Claire Matthews told AM on Tuesday the country needs banks to make a profit, and the Prime Minister shouldn't be wanting anything different. 

"Well, to be perfectly frank, I think the Prime Minister is playing to her audience," Matthews told AM co-host Ryan Bridge.  

"She's come out of the Labour Party conference. She's starting to gear up for the next election and banks are an easy target and they're busy announcing profits that sound in dollar terms really large."

Matthews said banks are very large organisations so they're going to make "large amounts of profits in dollar terms", but she doesn't believe they're creaming it on the margins they're charging Kiwis. 

"It's really hard when it comes to margins. The margins are about where they normally are," Matthews said. 

"They might be starting to widen a little bit because interest rates are going up, but in reality, this is about the sort of margin banks are making." 

Matthews said Kiwis should want banks "to do well" and added some of the reasons why they made large profits is because they wound back some of the provisions they had and the economy has done "really well".  

"If the banks aren't making a profit, it means that they're making a loss and that's when banks fail," she told AM.

"So we do actually want the banks to make a profit. The only question really is the quantum of profit and we don't have an answer as to what is an appropriate quantum of profit."

Matthews said the Commerce Commission could "look under the bonnet" to answer questions people have about the large profits banks are making and it's a view Consumer NZ chief executive Jon Duffy agrees with. 

"What enquiries like the fuel study, what the supermarket study and what the current study into building products do for us is they give us an evidence base," Duffy told AM on Tuesday. 

"Having some answers to some of the questions around whether the profits the banks are making are excessive would, I think, be really useful for us to then have an informed debate like we're having with the supermarkets around what potential options to fix any problems are."

Despite Ardern's claims banks are making unjustifiable profits, Duffy said there is limited evidence to back that up. 

"Although the billions of dollars of profits may irk many New Zealanders who are doing it tough at the moment, there's limited evidence that we have at the moment that those profits are excessive," he said.

"They could be, but I think we need an evidence base before we throw too much shade at the banks." 

Watch the full interview with Claire Matthews and Jon Duffy above.