MPs to investigate whether banks’ lending and climate policies are hurting farmers.

Wednesday, 14 August 2024

A select committee inquiry will investigate whether bank climate policies are starving farmers of capital, and pushing up the price of rural lending.

Parliament’s finance and expenditure select committee has given people until midnight on September 25 to have their say on competition in banking, including on the future of Kiwibank.

But the inquiry’s terms of reference will also see MPs probe whether banks’ climate policies are pushing up costs, or limiting capital, to higher-emitting businesses, especially in the agricultural sector.

Banks have all adopted emissions reductions plans, and are required by law to make annual climate disclosures.

How did we get here with banking?

After MPs heard increasing concerns that banks have been reluctant to lend to rural and small businesses, potentially hindering economic recovery, finance minister Nicola Willis announced a full select committee banking inquiry would be held.

The inquiry is not related to the Commerce Commission’s market study into competition in the retail banking market, a report on which is due to be published on August 20.

The terms of that study, created by the previous government, excluded lending to businesses from its remit, which prompted criticism at the time.

The select committee said the terms of reference for its inquiry included probing the price of banking services, with a particular focus on business and rural lending products.

It would also examine profitability in banking, how it has changed over time, and how it compared to other OECD economies, despite the Commerce Commission having already concluded banks in New Zealand make high profits compared to banks overseas.

The select committee will also look at the return on capital banks make from business, rural, and residential mortgage lending, and the level of interest rates charged to each sector.

Federated Farmers told MPs on Parliament’s primary production select committee in May that farmers believed they were being overcharged for their loans compared to people taking out mortgages to buy urban homes.

Federated Farmers also pointed out that banks, possibly pushed by Reserve Bank capital requirements, were reducing the portion of their lending to the agricultural sector relative to residential mortgage lending.

One of the questions the select committee inquiry will cover is whether the Reserve Bank’s focus on financial stability was impeding the development of competitiveness, and to what extent the Reserve Bank’s capital requirements and credit risk models influence lending rates.

Another concern is that the Reserve Bank’s approach to greenhouse gas emissions risk was likely to result in further increases in lending rates to the agriculture and horticulture sectors.

The select committee also wants to hear from the public on things that the Commerce Commission has been investigating, including the level of customer “switching” between banks, and on any barriers people see to competition between banks.

The government is pondering the future of Kiwibank.

The commission has concluded, as has the Reserve Bank, that open banking is the key to increasing competition in banking.

Open banking is a term used for existing banks, and a new breed of digital-only “neobanks” delivering banking services more efficiently with very low barriers to switching banks.

The big banks have been accused to going at a “glacial pace” on open banking.

The inquiry also wants to hear about access to banking in rural towns, including the availability of cash, which the Reserve Bank has been investigating.