‘The penny has dropped’; Why National is getting tough on banks

Monday, 5 August 2024

Prime Minister Christopher Luxon and Finance Minister Nicola Willis at the National Party convention in Manukau, South Auckland, on 3 August, 2024.

ANALYSIS: “The penny has dropped” says Shane Marsh, co-founder of Dosh after Finance Minister Nicola Willis recast the National Party as the force to smash the “cosy oligopoly” of the big four Australian banks.

“We need more mavericks. Open banking technology. More transparent choices for customers,” Willis said at the National Party conference on Sunday.

She wanted to see Kiwibank get the capital to grow to become a disruptive competitor to the big Australian-owned banks, with that capital possibly coming from KiwiSaver funds.

Marsh, who is seeking to turn Dosh into New Zealand’s first fully-digital bank, said a stronger Kiwibank would undoubtedly bring some competition to banking.

But, he said, the lesson from overseas markets was that real competition did not come from stronger traditional banks. It had come from digital banks like Monzo in the UK, Up in Australia and Nubank in South America delivering lower-cost banking.

Willis messaged him personally when he took to Linkedin to make his feelings known.

MPs were not impressed by bankers’ assurances over rural lending claims.

“Let’s do both!” she messaged.

What’s changed at National

The National Party has been traditionally seen as a supporter of banks. It was against the last Labour-led government calling for a Commerce Commission market study into banking competition. Now, Willis is quoting the commission’s “cosy oligopoly” and “weak competition” lines.

Sam Stubbs, founder of the Simplicity KiwiSaver scheme, which competes with the banks on KiwiSaver and home loans, believes several factors have come together to tip the National Party’s attitude.

Public anger at what is seen as excess bank profits has been strong for a long time.

But Stubbs said the commission’s work had demonstrated not only that they were, but also begun to construct a blueprint for change; involving capitalising Kiwibank, and driving digital banking.

Farm lobby trumps bank lobby

The powerful banking lobby has crashed into a second powerful lobby close to the National Party; the farmers.

And it seems to be losing.

In June, National MP Catherine Wedd quizzed banks on the huge profits.

Federated Farmers successfully convinced the Government to call a select committee inquiry into the aspects of banking the last government left out of the commission market study: rural and small business banking.

The last government did not listen to protests that small business banking was even less competitive than retail banking, when it set the terms for the market study, but then the farmers got into the Government’s ear.

Stubbs said the big Australian banks favoured lending on more profitable, lower-risk urban mortgages than into the agricultural sector.

“I’m not surprised the agriculture and commercial sectors aren’t friends of the banks,” says Stubbs.

“They’ve just been lending less and less to industry and agriculture.”

Stubbs thinks that has broken an implied “social contract” between the big banks and New Zealand: taxpayers have the banks’ backs with an implicit guarantee, but in return, the banks must have the country’s back.

It’s all about the economy

New Zealand relies heavily on the agri and small business sectors for growth, and this is a Government that has set its stall out to turn the flagging economy around.

It needs banks to do more than just pump out home loans.

‘Looking at overseas markets, the disruptive forces driving the best technology and better prices have not come from stronger traditional banks,’ says Shane Marsh, cofounder of Dosh.

“How can this be a productive growing economy if farmers and enterprising businesses struggle to get lending?” Willis told the party conference.

Marsh says: “I get the sense the penny has dropped, and there’s an understanding that there is a massive segment of New Zealand that’s making excess profits, and its the banks.”

Kiwibank has not yet been much of a constraint on the big Australian banks, the Commerce Commission has concluded.

Each dollar of bank profit is a dollar that’s not in the pockets of New Zealand households, and businesses, he says.

What does this mean for Kiwibank?

Privatising Kiwibank by listing it on the NZX sharemarket would be the first step to getting private capital into it.

For Stubbs, capitalising Kiwibank to compete would be a “staged” process.

To really compete, it was not only capital that was needed.

Kiwibank would need to complete its core banking system renewal so it could become a powerful digital bank, he says.

But, it would also need to have a complete overhaul of the board of government appointees.

“I don’t think Kiwibank is ready to be fully-listed, and available yet,” Stubbs says. “It needs another year or two to get its infrastructure right. It needs to get its core banking system complete, so it can handle the scale.

And, he says: “You need to get some commercial animals around the board table.”

Caution on the potential of Kiwibank

Stubbs says the banking sector needs something like the supermarket sector’s Pak‘n Save.

However, Marsh questions whether the analogy is a good one. Despite Pak‘n Save’s existence, supermarkets are still considered to charge high prices for groceries.

“Looking at overseas markets, the disruptive forces driving the best technology and better prices have not come from stronger traditional banks,” he says.

The commission’s draft market study report found that despite being around for two decades, Kiwibank was still not considered a domestic systemically important bank by the Reserve Bank Te Pūtea Matua.

And, it was in many ways, acting like a big bank.

“When setting interest rates, the major banks and Kiwibank focus largely on each other, with little or no regard to the pricing decisions of smaller lenders,” the commission said.

None of the major banks or Kiwibank were consistently offering the lowest headline interest rates, it said.