How our banks stack up

While comparisons between different countries aren’t always simple, it’s fair to say our particular crop of banks serve us well in terms of customer service, innovation and good business practice.

“One’s destination is not a place, but a new way of seeing things,” said Henry Miller. There’s
nothing new about the idea that travel brings a fresh perspective. And so it was for me on a
trip to London last year. It’s one of the greatest cities in the world which is also surprisingly
familiar with its narrow lanes and Monopoly board names. It’s also Europe’s biggest financial
centre and a world leader in global finance. While it may be a case of comparing apples and
oranges, I couldn’t help observing some differences between banking in the United Kingdom
and New Zealand.

Setting scale to one side, banking in New Zealand is a bit simpler and more conservative
than in the UK. This was once a criticism of our banks, but in recent times has stood us in
good stead. Our banks are responsible financial service providers and largely focus on the
needs of households, small and medium-sized businesses and the agricultural sector.

We came through the global financial crisis without any bank failures or government bailouts
of banks. Regrettably, that was not the case for our trans-Atlantic counterparts. Nor did we
get into complex collateralised debt obligations and the associated sub-prime mortgage
lending in markets over-supplied with housing. In fact the issue for us has been an undersupply
of housing in parts of the country, not the availability of cheap credit.

When it comes to customer experience we also compare quite well at this end of the world.
New Zealanders rate their own banks highly. Consumer NZ recently found that banks
outshone other industries with an average overall customer satisfaction rating of 89 per cent.
By comparison, a recent survey by UK consumer group Which found satisfaction across 21
banks ranged from 41 per cent to 85 per cent, with an average satisfaction rating of 58 per

The high satisfaction ratings among bank customers are not accidental. Our banks operate
in a very competitive environment and work hard to attract and retain their customers. The
industry has responded to customer needs through ongoing innovation in products and
increased access to a range of banking services. A decade ago, for example, we wouldn’t

have dreamt of banking on the run with an app on our mobile smart phones. Now we’re
starting to talk about ‘mobile wallets’ and the introduction of contactless payments
technology on smart phones.

Royal Bank of Scotland CEO Ross McEwan, who used to be head of retail at
Commonwealth Bank of Australia, says there’s a stark difference in the levels of customer
service between British and Australasian banks. New Zealanders and Australians demand
more from their banks than the British. As a result, there’s little focus on customers and
customer satisfaction in UK banks.

McEwan has also observed a lower level of competition in the UK because banks there were
so badly affected by the global financial crisis that they’re more focused on fixing their
balance sheets than anything else.

A strongly competitive banking environment has also driven easy bank switching in New
Zealand. Back in 2010 the industry agreed new rules to make it easier for customers to
switch banks. Now you just sign one form and your new bank takes care of everything within
five working days. They will arrange the transfer of your funds and payments information
from your old bank. Crucially, they’ll also provide your new account number to other parties
you pay by direct debit, such as utility service providers. The process is designed to be
seamless. The UK has moved to catch up with us, although their new switching rules only
reduce the switching time from 18 days to seven working days.

The 2012 scandal around Libor, the London inter-bank offered rate, also provides a point of
difference between us and the trans-Atlantic banks. Libor is a global financial benchmark.
Leading London banks are asked to predict at what rate of interest they will be able to
borrow from other banks the next day. The average is published as the Libor rate. Libor, it
transpired, was subject to manipulation during the global financial crisis with the effect of
masking the actual risk of some banks. The New Zealand bank bill reference rate, known as
BKBM, is based on actual trade between banks rather than an estimate which can be
manipulated. For this reason, in March 2011, the Financial Times suggested that Libor
should follow the New Zealand model.

While comparisons between different countries aren’t always simple, it’s fair to say our
particular crop of banks serve us well in terms of customer service, innovation and good
business practice. Our banks have weathered the last few years of global financial turmoil
well. They are among the best capitalised and regulated banks in the world and stand up
well among many of their northern hemisphere peers. That’s good for us and our economy.