Many are suspicious that huge bank profits are earned through exploitation of their dependent customers through exorbitant fees and charges.
Banks, naturally, deny such claims, but when faced with having to elucidate on annual profit figures such as ANZ (2024 $2.2 billion), ASB (2025 $1.3b), BNZ (2024 $1.5b) and Westpac (2024 $1b), the sector, as a whole, struggles to convince the sceptical that they too have endured tough times.
In New Zealand the aforementioned four banks own almost 90% of banking system assets, which has led many to argue that the answer — and the same panacea is touted for other sectors with only a few players, such as fuel and grocery — is more competition.
The government heard the people’s cry and conducted a select committee investigation of banking competition, alongside a review of the rural banking system.
Its report was released last week, to much fanfare, but those sceptics will feel some entitlement to maintain their stance, despite the Reserve Bank starting consultation on a review of the amount of capital banks should hold.
The Commerce Commission has previously trod the banking sector review path and many of the select committees findings are, unsurprisingly, reminiscent of this earlier work.
The commission found the so-called "Big Four" faced weak competition in the personal banking sphere, that banking in New Zealand was highly profitable compared to similar countries, and that the market power of the major banks likely explained them making multi-millions annually for their shareholders.
The committee recommendations included asking the Financial Markets Authority to consider conducting a formal review of transaction account pricing — likely another exercise in telling MPs what they suspect they already know — and that the Reserve Bank consider lowering barriers for overseas banks to enter the New Zealand market and offer additional competition.
The mere mention of more foreign banks in New Zealand will make some quail but, realistically, no potential domestic competitor will likely be able to amass the capital to compete with the established Australian-owned banks.
Finance Minister Nicola Willis as good as said that recently when announcing that Kiwibank —which sits on a tier of its own in the banking hierarchy, between the major firms and boutique lenders — could raise an extra half a billion capital.
Although those funds will likely come from institutional local investors, her subsequent suggestion of a possible future flotation of the bank (subject to an electoral mandate and a mandatory government shareholding of at least 51%) intimated that it is believed for Kiwibank to ever rival the big four will take overseas funds.
Whether other report recommendations, such as asking the Reserve Bank to review its settings for banks to set up, and if restricted terms such as "bank" and "banking" are problematic — have been acted on but their efficacy remains to be seen.
There has been greater enthusiasm for the report’s findings on rural banking, especially of capital requirements for rural lending and a recommendation that banks disclose the specific factors they take into account when calculating their risk margin and pricing.
Country folk have long believed that the closure of rural bank branches has led to credit decisions being made by urban bankers with little understanding of the rhythms of the productive economy. If followed through, this may alleviate such concerns.
As with all reports, what really matters is whether they then sit gathering dust on a shelf or if anything actually happens. A planned six-monthly update from regulators and the banks themselves offers some prospect of ongoing monitoring. So too does a request that the government respond to all recommendations in the report, including those not directly addressed to it.
Ultimately, the report’s value will be decided by bank customers.
