National's Nicola Willis says Govt has signalled banking 'market study' will be called

Tuesday, 14 March 2023

New Zealand now looks set for an official investigation into competition and profits in the banking sector.

The Government will ask the Commerce Commission to conduct a “market study” into competition and profitability into the banking sector, National’s deputy leader says.

Calls for a market study of banking, similar to ones conducted by the commission into the supermarket and building sectors, have been mounting.

Willis said on Monday, Labour members of Parliament’s Finance and Expenditure Committee voted against opening a select committee inquiry into the retail banking sector.

Government MPs claimed “a Commerce Commission market study is likely to occur”, she said.

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“If that is the case, the Minister of Commerce should confirm it immediately,” Willis said.

Duncan Webb, Minister of Commerce and Consumer Affairs, said he was working with the Commerce Commission and Ministry of Business, Innovation and Employment officials to identify the next market study.

“Any inquiry into banking needs to be done by experts who are properly resourced to do it and have the right terms of reference to get the greatest long-term gains for consumers. Decisions on the next market study will be announced in due course.”

Willis had been pushing for a “short, sharp” select committee inquiry, and said: “I’m disappointed Government MPs have rejected my good-faith proposal for a short, sharp inquiry to get New Zealanders the timely answers they want about competition in New Zealand banking services,” Willis said.

Jon Duffy, chief executive of Consumer NZ, said a select committee inquiry was not the right way to investigate banks.

He said it was a complex issue that should be handled by the Commerce Commission, not a “quick and dirty” by select committee, he said.

Jon Duffy, Consumer NZ chief executive, says the country is crying out for bank account number portability.

“It's as complex, if not more, than the supermarket issue.”

He said there were lots of similar indicators that competitive pressure was lacking in the banking sector, to those seen in the supermarket sector.

One of the red flags was banks’ very high levels of profitability, he said.

On Tuesday, KMPG released a report on banks’ after-tax profits in 2022 showing they passed $7 billion for the first time.

“It needs to be done properly because there are potential ramifications for how the financial system works,” Duffy said.

“We feel these profits are extremely high, but we don't know if they are excessive,” Duffy said.

“No one is saying banks shouldn't make a profit. It's when they make excessive profit, and the wealth is transferred from the people of New Zealand offshore,’ he said.

He said there was low innovation in the banking sector, and the country was crying out for open banking, and bank number portability to make switching bank easier.

Calls for a Commerce Commission market study started to get traction in February after 2degrees founder Tex Williams published a draft terms of reference for a banking probe in a bid to get the country talking.