Banks deflect Parliamentary inquiry onto deregulation path

Tuesday, 11 March 2025

Big banks call for a red light on yet more regulation of banks.

ANALYSIS: Bank chief executives were summoned back to Parliament for a grilling, but skilfully turned their hearings on Monday into a lobbying session for reducing banking regulation.

The chief executives of ANZ, BNZ and ASB, flanked by their banks’ chairs, lobbied hard, not only for a review of Reserve Bank capital requirements at hearings of Parliament’s banking inquiry on Monday, but also for a rethink of the “layers” of regulations and laws banks must abide by.

ASB chief executive Vittoria Shortt told MPs: “I personally would like to see a lot more of what I call international harmonisation of regulation for New Zealand. Full stop.”

She said: “We have many layers of regulation, and when you aggregate them all up we are at one end of the spectrum.”

There needed to be a “very high bar” for new regulations on banks, she said.

“We continue to see new regulations proposed,” she said.

She questioned whether the departure of HSBC and Kookmin Bank from New Zealand, and Heartland Bank pulling out of residential mortgage lending, were related to regulation.

Reserve Bank Governor Adrian Orr has resigned suddenly, with no notice period, and no real explanation as to why. Orr has been in charge since 2018 and was only half-way through his second term at the helm.

The bank chairs and chief executives had all appeared before the Finance and Select Committee hearings last year, but as MPs learned more about banking, they recalled the bank bosses to answer more questions.

But MPs worries over bank profits, alleged ‘woke’ banking, and supposed failures to lend enough to Māori businesses and property developers were deflected, and the hearings become a concentrated attack on alleged over-regulation of banks.

The bank bosses were ploughing a furrow MPs had heard a lot about during earlier hearings, especially from smaller banks like Kiwibank.

MPs have particularly focused on Reserve Bank Te Pūtea Matua capital requirements for banks, which they have been told are holding back smaller banks that could bring more competition to the big four banks.

Reserve Bank Governor Adrian Orr resigned last week.

The three banks who appeared before the committee used their hearings to call for a review of the Reserve Bank capital rules, which were set in 2019 to ensure the banking sector had enough capital to cope with a massive one-in-200 year economic crisis, instead of the smaller one-in-100-year crisis other countries used.

These “conservative” capital rules were being phased in, and the banks made it clear they would like to see the increases paused, and for the Government to review the changes, which they say were adding to the cost of loans and limiting economic growth.

Less conservative capital requirements would mean lower lending rates, all else being equal, bank bosses told MPs.

However, BNZ and ASB also spoke of their return on equity having fallen, telling MPs that shareholders needed an adequate return.

ASB chief executive Vittoria Shortt told MPs that it was time to ensure the Reserve Bank capital requirements for banks were not creating barriers that 'hold us back'.

But as well as the Reserve Bank’s capital rules, the big three banks sought to widen the focus on regulation.

Shortt said the focus on regulation by MPs had been too narrowly concentrated on capital requirements.

BNZ chairperson Warwick Hunt claimed New Zealand banks were over-encumbered by regulations from conduct and responsible lending laws, to environmental reporting laws.

“We have some of the most onerous environmental reporting standards in the world,” Hunt told MPs.

ASB chairperson Therese Walsh said New Zealand banks relied on foreign capital, and if New Zealand had too much regulation, the owners of that capital may not be as motivated to continue providing it.

ANZ chief executive Antonia Watson is flanked by ANZ chair Scott St John. The pair were speaking at Parliament's banking inquiry.

In earlier hearings, smaller banks, and non-bank lenders, had spoken about the disproportionately heavy impact of regulations on them compared to the much more profitable big banks.

At the end of the hearings process, the select committee will write a report for Government making recommendations for change.

In the run-up to their call-backs, the select committee had sent the big banks a list of 50 questions they wanted answering showing where their concerns lay.

For MPs of all colours, they Reserve Bank capital settings had become a big focus, the list of questions showed, but other areas had also been causing MPs concerns.

For Labour MPs, lending to Māori businesses grew as a concern.

For Green and ACT MPs, banks’ climate and environmental lending decisions became a focus, for very different reasons, with ACT on a campaign to prevent banks from suffocating industries such as mining and petrol retail by refusing to lend to them.

But at the Monday hearings, ANZ, ASB and BNZ handled lending to Māori without much push back from MPs, outlining their efforts to better service Māori businesses, many of which were well capitalised and had no issues getting loans.

They also portrayed themselves as not being the “woke” climate warriors ACT MPs worry they have become, seeking to distance themselves from the United Nation’s Net-Zero Banking Alliance, which their parent banks had joined.

BNZ defended itself over the controversy around it seeking to pull back on lending to petrol retailers, telling MPs it had more than its fair share.

Shortt said ASB recognised people still needed to get places, and would lend to petrol station owners.