Banks' response to Government's inquiry called 'fantasy-land comment' by competition advocate

It's taken years of calls and back-to-back eyewatering profits, but the Government has finally announced it will investigate banks.

The Commerce Commission will do a market study into competition in the banking sector to see whether the market is working for Kiwis.

While there are 27 banks in New Zealand, only the big four - that's ANZ, ASB, Westpac and BNZ (which are all Aussie-owned) - make up around 85 percent of the mortgage and other lending market. They also hold 90 percent share of total bank deposits.

It won't be quick. The market study will take more than a year. Kiwis will get a peek in August about what some of the key issues are.

But one consumer advocate has called it a "win for consumers".

Banks keep Kiwis' money safe. But boy, do they make a lot of money doing so.

The Government's finally going to take a real good look under the banks' bonnet.

"If you're a person struggling with the cost of living, struggling with the cost of food and you turn around and you look and you see the profit the banks are making, you have legitimate questions. That's what this study is designed to answer," said Finance Minister Grant Robertson.

Because me oh my do they make a pretty profit.

Last year, banks' profits were $7.18 billion after tax, up $1 billion on the year before.

That is quite a chunk of change to wrap your head, so here's what it could buy: 9102 houses at the average sale price or 1.4 billion blocks of $5 butter. It's also the wages of 91,208 Kiwis on the average wage.

In sum, it's a lot of money.

"It's a big number, but they are big businesses," said Roger Beaumont, the chief executive of the New Zealand Banking Association.

"You have got to remember the $7 billion is matched by the $9 billion that those businesses spent running their businesses and paying staff and paying tax and contributing to the economy in general."

But competition advocate and 2degrees founder Tex Edwards said: "It's just a fantasy-land comment that the Banking Association think that there is nothing to answer for in the banking market study."

The watchdog's deep dive will take over a year. It's not due back in full until August next year.

It will only look at personal banking services, like mortgages and daily bank accounts.

"The Commerce Commission market study will focus on barriers to entry, expanding in the market and the introduction - or lack of - innovative products and services," said Commerce and Consumer Affairs Minister Dr Duncan Webb. 

But the Banking Association said the market study could do the opposite of encouraging banking innovation.

"The sheer volume of regulation that banks have been having to deal with has been a bit of a handbrake on the ability of banks to innovate for their customers," said Beaumont. 

National's Christopher Luxon said the party is "supportive and open to the Commerce Commission work and we will see where that goes".

ACT's David Seymour said it's "very populist to beat up on the banks". 

Beat up or not, bring it on say the banks.

"We think it is a very competitive market, we have 16 retail banks in New Zealand," said Beaumont.

Robertson said if that's the case, the study will show it. 

Kiwis will just have to wait a year to find out whether the banks are doing anything wrong or not.