Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Westpac could lead Australian exit from New Zealand banking

Stock Markets Mar 25, 2021 02:45AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. Pedestrians walk past the ground floor of an office building with Westpac logo in Sydney

By Paulina Duran

SYDNEY (Reuters) - Westpac Banking (NYSE:WBK) Corp's potential spin-off of its New Zealand unit due to tighter regulation could see some of the other three Australian-owned banks that make-up the bulk of the kiwi banking system follow its lead, investors and analysts said.

Seeking to safeguard the New Zealand banking system, an increasingly activist central bank has been progressively separating the operations and capital of the local units from their Australian parents.

The high costs involved have challenged the outlooks of the Australian-headquartered Big Four lenders, with analysts estimating their return on equity ratios could fall by between half and a third from the about 15% they used to deliver.

"All banks would be considering the same question, given changes in regulatory and capital requirements," said Sean Sequeira, chief investment officer at Australian Eagle Asset Management.

The units of the Big Four - Australia and New Zealand Banking Group, Commonwealth Bank, National Australia Bank (OTC:NABZY), and Westpac - dominate over 85% of the New Zealand banking market.

In 2017, the Reserve Bank of New Zealand (RBNZ) introduced a requirement to have the ability to run the subsidiaries locally within six hours notice, if needed, and in 2019 it asked them to almost double their local capital levels within seven years.

The capital requirements were extended by a year due to the COVID-19 pandemic.

On Wednesday, freshly sanctioned by the Reserve Bank of New Zealand for the poor risk governance of its unit, Westpac said it was in the "very early" stages of assessing a demerger.

RBNZ said Westpac NZ had, for years, operated outside of its own risk settings for technology, and would have to raise its cash holdings until it improves governance.

"Westpac will not be the only Australian bank looking at its NZ operations," Jefferies (NYSE:JEF) banking analysts Brian Johnson said.

Like its competitors, Westpac has been offloading businesses it considers non-core to focus on its home market, and spinning off the New Zealand units or selling them would be in line with that strategy.

This week, New Zealand also introduced more measures to cool its housing market that analysts expect will hit mortgage growth in the country.

With profitability becoming more challenging, "we don't think an Australian bank owning a New Zealand bank makes sense," Johnson said.

Representatives from Commonwealth Bank declined to comment.

ANZ, which owns New Zealand's largest lender, said that its unit remained a "core part of who we are and our long-term future", but it added that the capital changes introduced would "have consequences" without specifying what those were.

Similarly, NAB said its BNZ unit was a "critical part" of its growth strategy and that there were no major changes planned for its asset portfolio.

"I think there's first mover advantage if Westpac moves first," said Jarrod Martin, a senior banking analyst at Credit Suisse (SIX:CSGN). "There are unlikely to be multiple buyers for banking businesses of that size."

Westpac's New Zealand unit represents about 10% of its earnings and credit exposure. According to KPMG, it could be valued at over A$10 billion ($7.60 billion).

"There is a lot of money floating around in New Zealand and around the world at the moment trying to find a home where they can earn some money," said John Kensington, KPMG's head of Banking and Finance in New Zealand.

"So I think there would be definitely appetite for new attractive investments coming into the market, and goodness me, blue chip banking stocks would attract a lot of interest."

A full separation and a re-branding of the banks' operations however, would likely be very costly, Kensington added.

($1 = 1.3158 Australian dollars)

Westpac could lead Australian exit from New Zealand banking

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email