NZ launches banking inquiry into profits, focus on Australian giants
New Zealand’s competition watchdog will investigate personal banking services profits dominated by Australian majors, CBA, NAB, ANZ and Westpac.
New Zealand has launched an inquiry into profits in its banking sector, which is dominated by the four Australian majors, following years of high returns that have outgrown those made in other countries.
Labour finance minister Grant Robertson said the competition regulator will undertake a market study into “personal banking services” in New Zealand, which has slipped into recession after taking the global lead in raising interest rates to fight skyrocketing post-pandemic inflation.
“The cost-of-living is top of mind for many Kiwis, and we need to ensure there’s a competitive market among banks,” Mr Robertson said in a statement, adding the competition review will include mortgages, personal loans, credit cards and other banking services.
“Banks have consistently made high profits over a number of years, and their returns have outperformed their peers in other countries. There have been long-standing concerns that the market is not working well for New Zealanders.”
The review will study “any factors” that may affect competition for the supply or acquisition of personal banking services.
Australia’s four banking giants – ANZ, NAB, CBA and Westpac – dominate with 90 per cent of the banking market in New Zealand, where profitability has been materially higher than at home.
The remaining share is held by smaller lenders including Dutch lender Rabobank and state-owned Kiwibank.
New Zealand was one of the first developed economies to increase interest rates in October 2021 from a record low of 0.1 per cent to 5.5 per cent by May this year, boosting bank margins as the lenders passed on the increases to borrowers.
ANZ’s kiwi subsidiary – which holds the largest share at 27.6 per cent – last financial year posted a 19.8 per cent jump in net profit to NZ$2.3bn, contributing to the group’s annual statutory profit of $7.1bn. Meanwhile, the NZ unit’s return on equity of 14.7 per cent was well ahead of the 10.4 per cent the parent reported in Australia, according to KPMG.
Returns from the NZ subsidiaries of the three other Australian banks are also higher.
As part of the study, New Zealand’s Commerce Commission will examine banks’ profitability and other financial measures to assess competition in the sector.
“New Zealand’s banking sector is dominated by a small number of big players,” Mr Robertson said. The country has not had an “in-depth look into competition issues” for some time and it “lags other countries such as Australia and the UK into doing a detailed analysis into banking services,” he added.
Australia’s competition regulator is currently investigating the bank deposit market and lenders have faced several inquiries, including a royal commission in 2018, following a string of scandals in the sector over the previous decade.
The NZ review will look at the structure of the industry, the nature of competition, conditions for entry by potential competitors, barriers to consumers comparing bank offers or switching banks, impediments on innovation and comparative indicators of bank financial performance.
Banks will engage “constructively” with the regulator for the study, and “the enquiry will ease any concerns in the community about competition and innovation,” the banking industry group said.
“Banks are among our biggest businesses so their profits look big,” the country’s banking association chief executive Roger Beaumont said. “They also contribute their fair share to New Zealand.”
ANZ New Zealand chief executive Antonia Watson said the country’s banking sector was “highly competitive... however, with cost-of-living pressures rising, it is understandable that reviews such as this take place.”
“A competition study is a good opportunity to provide facts in what can be a complex area and we hope it improves the confidence that New Zealanders can have in its banking sector,” she said.
Mr Robertson said the investigation would not be “about bank conduct and culture” given that a 2018 regulatory investigation into those issues had already “resulted in a number of measures to protect consumers.”
The review will set out “any actions needed to make sure competition is working for bank customers” by the end of August 2024, NZ Commerce and Consumer Minister Duncan Webb said.
Mr Webb added the country would introduce a consumer data rights regime this week. “Open banking will put consumers in the driver’s seat of how their data is used and shared,” he said.
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