New Zealand’s government announced an inquiry into its banking sector amid concerns that lenders are making excessive profits.
Cabinet has agreed to a market study into competition in the banking sector for personal banking services to ensure the market is working well for New Zealanders, Finance Minister Grant Robertson said Tuesday in Wellington. It will be conducted by the antitrust watchdog Commerce Commission and be completed by August 2024.
The government has voiced concerns about bank profits for several months, particularly when lenders reported earnings increases at a time the nation was facing a surging cost of living. The decision to proceed with an inquiry comes less than four months from a general election, and there is scope for the government to act on some issues before the vote.
“There have been long standing concerns that the market is not working well for New Zealanders,” said Robertson. “Banks have consistently made high profits over a number of years and their returns have outperformed their peers in other countries.”
New Zealand’s four biggest banks are all units of Australia’s major lenders, which together hold about 90% of deposits. Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. operate under their own brands, while Commonwealth Bank of Australia owns ASB Bank and National Australia Bank Ltd. controls Bank of New Zealand.
Westpac New Zealand reported a net profit of NZ$1.05 billion ($650 million) for the year through Sept. 30, up 12% on a year earlier, while ANZ Bank New Zealand posted a net profit of more than NZ$2 billion for the same period.
Former Prime Minister Jacinda Ardern first flagged government concerns about bank profits and fees in November, suggesting that lenders needed to reflect on their behavior and questioning whether they were demonstrating a commitment to their communities. Her successor Chris Hipkins reiterated in May that his government remained concerned about the level of bank profits.
Robertson said there has not been an in-depth look into competition issues in New Zealand’s banking for some time, and the nation lags other countries such as Australia and the UK in doing a detailed analysis of banking services.
‘Ease Concerns’
The inquiry will ease concerns about competition and innovation in the industry, said New Zealand Banking Association Chief Executive Roger Beaumont.
“We are open to the opportunity to discuss the contribution banks make to support the New Zealand economy, households, and businesses,” he said in a statement.
Robertson said the focus of the study is not on bank conduct and culture. A 2018 investigation into this issue by the Financial Markets Authority and Reserve Bank had already resulted in a number of measures to protect consumers, he said. That investigation was sparked by an Australian Royal Commission that heard of unethical behavior by lenders.
The Commerce Commission market study is confined to competition issues and will focus on examining barriers to new competitors entering or expanding in the market, the introduction of innovative products and services and consumers’ ability to switch between banks, Commerce Minister Duncan Webb said.
The regulator is expected to release a preliminary issues paper in August this year.
“I expect this paper will describe the structure of the industry and provide early indications on the nature of competition,” said Webb. “It will set a clear signal of direction for the study and may uncover discrete issues which the government could take steps to resolve, ahead of the final report.”