The Commerce Commission is to look into competition in the banking sector for personal banking services, Finance Minister Grant Robertson has announced.
Finance Minister Grant Robertson said record-high profits had raised concerns the industry was not working well for New Zealanders.
“We need to ensure there’s a competitive market among banks providing personal loans, mortgages, credit cards and other banking services so that people have confidence they are getting the best deal possible when doing their banking.”
New Zealand banks performed better than international peers and even the Australian parents of the country’s four biggest banks, Robertson said.
“New Zealand’s banking sector is dominated by a small number of big players. Four major banks make up around 85 percent of the mortgage and other lending market, and hold a 90 percent share of total bank deposits. Loans by smaller lenders are growing but remain small in comparison.
“When we compare ourselves to other countries around the world we can see that the level of profit, on equity or return on equity, is higher than the average across the world. Now, the banks will say to you that there are specific reasons for that, we need to pull that apart.
“At a time when New Zealanders are struggling with their cost of living I think it is reasonable for people to say ‘are we getting a fair deal here when we see those level of profits’.”
The last sector report by business advisory firm KPMG showed collective sector profits of $7.18 billion for 2022 as banks profited from the demand for mortgages for the strong housing market, rising interest rates and margins, and low bad debts.
Finance Minister Grant Robertson said record-high profits had raised concerns the industry was not working well for New Zealanders.
Photo: RNZ / Samuel Rillstone
Commerce and Consumer Minister Duncan Webb said the inquiry was needed to understand the competition issues and possible future action.
It would look at barriers to entry or expanding in the market, introduction or lack of innovative products and services, and consumers’ ability to switch between banks, he said.
Robertson said it would not look at bank conduct, because that had already been looked at by the Financial Markets Authority, which had led to changes Robertson said had benefited consumers.
The final report was due in August 2024, but Webb said the commission would provide an issues paper in August, which “may uncover some discreet issues which the government could take steps to resolve ahead of the final report”.
Robertson said this would give people some indication of what would be needed ahead of the election.
“Clearly we want to do the job properly, so that means it will go into next year, so [it] gives people an interim marker post for the election.”
Webb said the government was also working separately on setting a consumer data rights regime needed to allow open banking, which would also improve competition in the sector.
The government would this week release draft legislation enabling that, he said.
“I think it’s probably one of the most significant gains we can make, not just for banking but across a number of industries, so that people can compare and switch easily. So we’re working as fast as we can on that.
“The banks have come out and said they’ll be ready – next year for the big four, [2026] for Kiwibank.”
Robertson said the announcement did not suggest banks were operating illegally, or that any particular bank was doing anything wrong.
“New Zealand’s banking system is sound and it does contribute to our financial stability. Rather, what we want to do here is identify any systemic sector-wide issues that may be impeding or discouraging competition.”
The Banking Association said the industry was ready to participate in the study.
“We believe the enquiry will ease any concerns in the community about competition and innovation in the banking industry. Our banks are transparent, and will engage constructively with the Commerce Commission,” Banking Association chief executive Roger Beaumont said.
The sector was already competitive with 16 retail banks operating in New Zealand and easy bank switching, he said.
“Our banks are highly regulated, well capitalised, and profitable. That helps makes them resilient, and with recent overseas bank failures we’ve seen why that’s important.”
KiwiSaver provider Simplicity’s chief executive Sam Stubbs has been vocal in accusing the Australian owned big four banks of making excessive profits and called for an inquiry.
The commission has previously carried out market studies on competition and profits in the fuel market , reported on the supply of key residential building products and looked at the country’s supermarkets, finding that competition among major retailers was not working well for New Zealanders.
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