Why New Zealand Banks Earn Higher Returns on Capital Than Their Australian Parents
Last week we set out the headline arithmetic. The four Australian-owned banks operating in New Zealand earned a combined $6.5 billion in 2024, more than the entire rest of the Deloitte Top 200 put together. The obvious follow-up question is the one that determines whether those profits are unusual or ordinary. How much capital have the banks actually invested to earn that money, and is the return they’re getting on it higher than their peers in other countries?
The answer is yes, by a meaningful margin, and the cleanest evidence sits inside the parent banks’ own books.
The internal comparison
Return on equity (ROE) is the metric every bank board cares about. It is the profit a bank makes divided by the shareholder capital backing it. A higher ROE means more profit squeezed out of every dollar of equity at risk.
In the most recent year for which clean side-by-side numbers are available, every Big Four New Zealand subsidiary earned a higher ROE than its own Australian parent.
| Bank | NZ subsidiary ROE | Australian parent ROE | NZ premium |
|---|---|---|---|
| ANZ | 14.8% | 10.4% | +42% |
| ASB / Commonwealth Bank | 15.2% | 12.7% | +20% |
| BNZ / NAB | 13.5% | 11.7% | +15% |
| Westpac | 12.7% | 7.5% | +69% |
The figures come from the banks’ own disclosures and are pulled together annually by KPMG in the Financial Institutions Performance Survey, with cross-checking by interest.co.nz. Average ROE across the New Zealand banking sector sits around 13.4%.
This is the kind of number that matters because it controls for size. ANZ Group is roughly seven times larger than ANZ NZ, but on a per-dollar-of-equity basis, the New Zealand operation is the more profitable side of the business by a wide margin. Same shareholders, same risk appetite, same global capital base. The only thing that changes is the market the bank is operating in.
Where NZ sits internationally
Stepping back further, the comparison against other developed-country banking sectors is just as striking.
| Market | Banking sector ROE (recent) |
|---|---|
| NZ Big Four | 13.4% |
| Australia (Big Four) | ~10–13% |
| United States (large banks) | ~11.9% |
| Canada (Big Five) | ~12% |
| United Kingdom (large banks) | ~10% |
| Eurozone average | ~9.3% |
| OECD average | ~10% |
The Commerce Commission, in its 2024 personal banking market study, put it more bluntly. It found that NZ Big Four returns sit persistently in the upper quartile of comparable developed-country banks. Not as a one-off cycle. Year after year.
How they generate the returns
There are three mechanisms doing most of the work.
The interest margin. Net interest margin is the gap between what banks pay for funding (mostly deposits) and what they charge on lending (mostly mortgages). New Zealand’s Big Four sit at roughly 2.3% to 2.5% according to KPMG’s 2024 survey. UK majors run around 1.5% to 1.7%. Canadian banks sit around 1.6% to 1.8%. Eurozone banks average around 1.4%. So on every $100 of intermediated money, NZ banks pocket roughly a dollar more than peers in comparable wealthy economies. Multiply by the roughly $580 billion in combined assets the Big Four hold in New Zealand and the gap explains most of the profit premium on its own.
The mortgage tilt. Around 70% of New Zealand bank lending is now residential mortgages, with ANZ at 72%. Under the Basel capital framework, mortgages carry low risk weights of 35% to 45%, meaning banks have to hold proportionally less capital against them. Less capital required against a loan with a healthy margin produces a very high ROE on that loan. Productive business lending carries 75% to 100% risk weights and earns smaller margins, so banks structurally do less of it. The whole sector has tilted toward the most capital-efficient lending available, which happens to be lending against existing houses.
The market structure. The Big Four hold roughly 90% of all banking assets in New Zealand. The Commerce Commission described the sector as a stable two-tier oligopoly, with sporadic competitive bursts followed by long stretches of comfortable margin maintenance. There is no maverick. Smaller banks face proportionally heavier regulatory and capital costs that scale poorly. Customers rarely switch. Mortgages are sticky. The four majors do not need to fight each other particularly hard because there is no fifth force pushing in from outside.
The competition tax
It is worth doing the back-of-envelope calculation that the ROE numbers make possible.
If New Zealand Big Four ROE was dragged down to the level of their Australian parents, somewhere around 11%, combined profits would fall by roughly $1.5 to $2 billion a year. That is the rough scale of what a more competitive market structure would return to New Zealand customers, either as lower borrowing costs, higher deposit rates, or both. It is also the rough scale of what is being repatriated as dividends specifically because the local market is less competitive than the parent’s home market.
That number is the closest thing to a clean estimate of the cost of the current arrangement, separate from the broader question of foreign ownership. It is not the cost of having Australian banks here. It is the cost of having Australian banks here in a market that does not discipline their margins.
The standard defence
The standard rebuttal is that high ROE simply reflects the cost of equity in a small, somewhat risky market, and that investors require a higher return to put capital into New Zealand. There is something to this in principle. But the parent-versus-subsidiary comparison undercuts it sharply. Same investors, same group balance sheet, same risk appetite, same regulatory regime in spirit. The only thing that changes between ANZ Group and ANZ NZ is the local competitive environment. If high NZ ROE was simply pricing in higher NZ risk, you would expect the differential to roughly match the risk premium. Instead, the gap matches what economists would call rents, the surplus that accrues to firms operating in markets without effective competition.
This is exactly what the Commerce Commission’s market study concluded, in more careful language.
What it means
The headline profit number is the right starting point, because it is concrete and easy to grasp. But the ROE number is what should worry policymakers, because it is the metric that strips out everything except market structure. New Zealanders are not just paying a lot of money to four foreign-owned banks each year. They are paying meaningfully more, on a capital-efficiency basis, than the customers of those same parent banks are paying back home.
That is not a happy accident. It is the predictable result of a market with high concentration, low switching, regulatory burdens that scale poorly for small entrants, and a lending mix that has converged on the lowest-risk and highest-margin product available. The Commerce Commission has documented this. The Reserve Bank has acknowledged it. The KPMG numbers confirm it year after year.
Whether anything changes is a political question. The numbers themselves are not really in dispute.
Sources — KPMG Financial Institutions Performance Survey 2024; interest.co.nz analysis of NZ vs Australian parent ROE; Commerce Commission Personal Banking Market Study Final Report 2024; Reserve Bank Bank Financial Strength Dashboard; UK Finance Global Banking Pulse H1 2024; Statista European and Australian banking sector ROE data.
Read the first part of this analysis — The Four Australian-Owned Banks Make More Profit Than the Rest of New Zealand’s 200 Largest Companies Combined.
What do you think? Is the ROE gap a market structure problem the government should act on, or just the price of doing business in a small economy? Drop a comment below.