Government confirms Commerce Commission market study of banking

The Government has asked the Commerce Commission to launch an inquiry into the banking sector to ensure Kiwis are "getting the best deal possible".

It will be completed by the end of August 2024, but a paper giving early indications of the nature of competition within the sector will be released in August this year. That could lead to the Government taking steps to resolve issues before the Commerce Commission provides its final report.

The market study will focus on personal banking services, meaning those "ordinarily acquired for personal, domestic, or household use", according to the notice from Commerce and Consumer Affairs Minister Dr Duncan Webb.

He set out a range of matters the inquiry could consider. But he said it wasn't restricted to these.

  • the structure of the industry and the nature of competition  
  • the conditions for entry by potential competitors and the conditions for expansion  
  • any barriers to consumers comparing bank offers or switching banks, including the extent to which products or services may be tied or bundled  
  • any impediments to new or innovative banking products or services  
  • comparative indicators of bank financial performance (including profitability). 

Dr Webb said the study would determine any actions needed to ensure competition is working for customers. 

"In the interim, the Commission is expected to release a preliminary issues paper in August this year," Dr Webb said.

"I expect this paper will describe the structure of the industry and provide early indications on the nature of competition. It will set a clear signal of direction for the study and may uncover discrete issues which the Government could take steps to resolve, ahead of the final report.

"Separately, we are getting on with our work on open banking and establishing a consumer data rights regime by releasing a draft Bill for consultation this week."

Finance Minister Grant Robertson said Kiwis need to know they can trust their bank with their finances.

"The cost-of-living is top of mind for many Kiwis and we need to ensure there's a competitive market among banks providing personal loans, mortgages, credit cards and other banking services so that people have confidence they are getting the best deal possible when doing their banking," Robertson said. 

"There have been long-standing concerns that the market is not working well for New Zealanders. Banks have consistently made high profits over a number of years and their returns have outperformed their peers in other countries."

Collective profits of banks in New Zealand were about $7.2 billion in 2022, a KPMG report said earlier this year.

Robertson said New Zealand's sector is dominated by a small number of big players. 

"Four major banks make up around 85 percent of the mortgage and other lending market, and hold a 90 percent share of total bank deposits. Loans by smaller lenders are growing but remain small in comparison," he said.

"There has not been an in-depth look into competition issues in New Zealand's banking for some time, and New Zealand lags other countries such as Australia and the UK into doing a detailed analysis into banking services."

New Zealand Banking Association chief executive Roger Beaumont said the industry looked forward to participating and believed it would "easy any concerns" about competition and innovation.

"We have a competitive banking sector, with 16 retail banks operating in New Zealand and easy bank switching. We are open to the opportunity to discuss the contribution banks make to support the New Zealand economy, households, and businesses," he said.

"Switching banks is easy. Your new bank can arrange everything including transferring your funds from your old bank and setting up your recurring payments to your new accounts. This can be done within five working days, and you don't even need to talk to your old bank.

"Our banks are highly regulated, well capitalised, and profitable. That helps makes them resilient, and with recent overseas bank failures we've seen why that's important."

The National Party has previously called for a "short" and "sharp" Select Committee inquiry into the retail banking sector but that was dismissed by the Government.

Last year, the Government announced it was working on legislation to enable open banking, which would require banks to share customer data with competitors if consumers want to shop around for a different provider.

Consumer NZ research in May revealed nearly 40 percent of New Zealanders don't trust banks, the highest level of distrust recorded since tracking began two years ago. 

Chief executive Jon Duffy said at the time that while banks aren't charities and should make a "reasonable" profit, "the question is what level of profit is reasonable and at what point does profit become excessive". People are also angry about bank fees, the research found.