Ministers respond to banking competition report

Summary

New Zealand's Commerce Commission has released a report highlighting a lack of competition in the personal banking sector dominated by four major banks. The government welcomes the report and its recommendations, pledging urgent action. Key themes for reform include growing Kiwi Bank, adjusting the Reserve Bank's regulatory settings to support competition, advancing open banking, and empowering consumers. The report emphasizes the need for innovation and aggressive competition to improve services and reduce high banking profits at the expense of consumers.

Takeaways

• 📋 The New Zealand Commerce Commission has released a final report on competition in personal banking services, highlighting the lack of competition and innovation within the industry.
• 🏦 The 'Big Four' banks—ANZ, Westpac, ASB, and BNZ—dominate the market, making up 90% of it and have not faced significant competition since Kiwi Bank's establishment in 2001.
• 📉 The report indicates that New Zealand consumers are at a disadvantage due to higher prices, fewer choices, and poorer service compared to customers of the same banks' parent companies in Australia.
• 💡 The government is responding with urgency to the report's recommendations and is committed to injecting more competition into the banking market for the benefit of all New Zealanders.
• 🌟 Kiwi Bank is seen as a potential 'maverick competitor' that could disrupt the current banking landscape, and the government is exploring options for raising capital to support its growth.
• 🛡️ The Reserve Bank's conservative regulatory approach is identified as a barrier to competition, and the government intends to issue a new Financial policy remit to emphasize competition.
• 🔓 Open banking is presented as a key to fostering innovation and competition, with the establishment of a consumer data right regime expected to pass by early 2025.
• 💼 The government is considering the introduction of private sector capital into Kiwi Bank to enhance its ability to compete and is open to various investment options, including from Kiwi saver funds and everyday New Zealanders.
• 🏢 The government is also looking into the possibility of allowing more financial institutions, such as credit unions and fintech companies, to market themselves as banks, even if not registered as such with the Reserve Bank.
• 🏛️ The government is prepared to engage with all stakeholders, including the opposition, to ensure the best outcome for New Zealanders and is considering legislative changes if necessary.
• 📈 The report's findings and recommendations are expected to drive significant changes in the banking sector, aiming to improve services, reduce costs, and increase consumer choice.

Q & A

What is the main focus of the Commerce Commission's final competition report on personal banking services?

The report focuses on the lack of competition in the personal banking sector dominated by four major banks and the negative impact this has on consumers, including higher prices, fewer choices, and poorer service.

How has the banking market structure affected competition according to the report?

The market structure, dominated by four major banks, has not enabled effective competition, leading to a lack of innovation and aggressive customer competition, with banks following each other's lead and price-matching rather than striving for market share.

What steps is the government taking in response to the report's findings?

The government is responding with urgency and is committed to acting on all 14 of the report's recommendations, aiming to inject genuine competition into the market for the benefit of all New Zealanders.

What are the four key themes identified for reform in the banking sector?

The four key themes for reform are: growing Kiwi Bank, ensuring the Reserve Bank's regulatory settings support more competition, accelerating progress on open banking, and empowering consumers.

Why is the government considering raising new capital for Kiwi Bank?

The government wants Kiwi Bank to have the growth capital it needs to expand its business and exert more pressure on the big four banks, potentially disrupting the market and offering better services to consumers.

What is the government's stance on the Reserve Bank's current prudential supervision regime?

The government agrees with the report's observation that the Reserve Bank's regime is very strict and conservative by international standards and needs to put greater emphasis on promoting competition.

What is the significance of open banking in the report's recommendations?

Open banking is seen as the most significant and enduring force for positive change, with the potential to promote ongoing disruption and competition, and enable the development of new products and services.

How does the government plan to address the issue of customers rarely switching banks?

The government plans to make it easier for customers to switch banks by promoting transparency in mortgage advisors' commission structures and encouraging the Financial Markets Authority to ensure advisors act in the best interest of customers.

What is the government's view on the role of the big four banks in the New Zealand economy?

The government believes that the big four banks are too profitable compared to international peers, lack innovation, and do not aggressively compete for customers, which has led to New Zealand bank customers getting a raw deal.

What actions is the government considering to ensure the Reserve Bank prioritizes the work needed to respond to the report?

The government intends to issue a new Financial policy remit and a revised letter of expectations to the Reserve Bank to clarify that its policies and actions should support a more competitive banking sector.

How does the government intend to use the findings of the Commerce Commission's report in broader economic policy?

The government sees the report's findings as a critical part of its economic growth program, aiming to rebuild the New Zealand economy by promoting competition as a driver of long-term growth and productivity.