Let the political theatre of Parliament’s banking inquiry begin

Wednesday, 28 August 2024

All the big bank chief executives will speak in person at the finance and expenditure inquiry to defend their banks from a growing anti-Australian bank narrative.

There have been rumours in Wellington political circles that they would send underlings to speak for their banks.

But the big hitters of Antonia Watson from ANZ, Catherine McGrath from Westpac, Dan Huggins from BNZ and Vittoria Shortt from ASB have pledged to attend, adding to the political theatre of the inquiry.

The Government ordered the inquiry after MPs on Parliament’s primary production select committee had inquired into rural banking, hearing from farmers who felt they were getting a raw deal from banks, being put under undue pressure and being denied fairly priced finance.

But the first hearing, scheduled for Wednesday morning, is likely to contain few surprises.

The Commerce Commission will be grilled by MPs about the recent release of its market study report, which found the big four Australian banks faced only sporadic, and generally weak, competition in New Zealand.

The main event for the select committee inquiry is still weeks away, as banks and other interested members of the public have until September 26 to send in their submissions, and register their desire to speak in person to MPs.

Another banking inquiry? Really? What more do we need to know about banking?

While the inquiry will cover some of the same ground as the Commerce Commission’s market study, including profitability and barriers to open banking, it will cover some new ground.

The commission’s market study focused on retail banking services to households, but left out business and rural banking.

Some argued that was a mistake, because while retail banking is relatively transparent, business and rural banking is not, but the economy depends on it.

Federated Farmers protested to MPs that banks were far keener to lend to people to buy homes in cities than to farmers.

The Government needs the economy to be back into healthy growth mode by the next general election rolls around in 2026.

How much of this is political posturing?

Some, undoubtedly. What better way to look tough, and send a message to bank chief executives and boards to back lending to grow the economy?

However, it’s clearly not all for show.

Practically, the select committee may help the Government make good on its pledge to move ahead with all the Commerce Commission’s recommendations for lifting competition in retail banking.

The inquiry will also allow MPs to test a few ideas as they seek ways of moving on the commission’s recommendations.

And it will allow them to test a few bees the coalition Government appears to have in its bonnet.

One is whether banks’ climate pledges are resulting in a growing unwillingness to lend to higher emitters like farmers, and charging them more for loans.

The other is lining up the Reserve Bank Te Pūtea Matua for more scrutiny.

What’s the beef with the Reserve Bank?

Finance Minister Nicola Willis has long been critical of the Reserve Bank and its governor Adrian Orr.

In late 2022, this is what she said about Orr: “In recent years, Adrian Orr as the chair of the monetary policy committee signed off on an extraordinary programme of money printing and cheap lending that pumped tens of billions of dollars into the economy. That programme directly contributed to house prices rising 28% in one year, inflation rising to a 32-year high, and record bank profits.”

One of the items on the inquiry agenda is whether the Reserve Bank’s policies are resulting in banks favouring some forms of lending over others, and are making it hard for smaller banks to compete with the big banks.

That includes whether the Reserve Bank’s capital requirements and and credit risk models influence lending rates to agriculture and horticulture businesses.

The coalition government also has suspicions that the Reserve Bank’s stance on greenhouse gas emissions risk “has and is likely to result in further increases in lending rates to the agriculture and horticulture sectors”.

Will Kiwibank figure in the inquiry?

Centrally. Its chief executive Steve Jurkovich will speak to the inquiry.

And, one of the key issues the committee will probe will be “the role of Kiwibank as a competitor”, so expect more talk in the coming weeks on options for injecting large amounts of capital into the state-owned bank.

Will this change anything?

Governments have come and gone, but big banks’ profits marched on.

The commission’s hopes for open banking and Kiwibank injecting more competition into the banking sector will take years to unfold, so don’t expect anything to happen overnight.

In places where open banking has taken off, like the UK, the big banks are still the powerful incumbents, though digital banking has allowed new entrants to build up big market shares, like Spanish bank Santander.

There has been a change in the political atmosphere surrounding banks, however, and on certain fronts, more progress appears likely.

On Tuesday, BNZ sent out a media release boasting that it had achieved a notable open banking first becoming the first bank to implement the Payments NZ Account Information API v2.1 standards, which will enable people to safely and securely share their financial information with approved providers.

It’s welcome to see big banks beginning to compete on their willingness to enable competition.

And banks’ old political certainties have changed. The National Party has traditionally been seen as friendly to banks (which are known to hire ex-National ministers to their boards and into senior management positions), and in recent weeks it has sounded anything but friendly.

The Banking Association is taking it seriously.

On its “regulatory radar”, it has the inquiry as “high priority”, but that’s a public document, and it would say that.