The Commerce Commission’s market study is to focus on personal banking services, including those “ordinarily acquired for personal, domestic or household use”.
Commerce and Consumer Affairs Minister Duncan Webb says the study should include the nature of competition, banks’ profitability, conditions for entry by potential competitors, and any impediments to new or innovative banking products or services being launched.
He has directed the commission to look into any barriers consumers faced comparing bank offers or switching banks, including the extent to which products or services may be tied or bundled.
Webb has asked the commission to publish a preliminary issues paper by the end of August this year before releasing its full findings by August 22, 2024.
He says the issues paper should describe the industry structure 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,” he says.
Finance Minister Grant Robertson says there are longstanding concerns 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,” he says.
Collectively, New Zealand’s banks’ profits after tax hit a record high of $1.9 billion in the September 2022 quarter. Thereafter they dropped off to $1.7b in the March 2023 quarter.
“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,” Robertson says.
New Zealand Banking Association chief executive Roger Beaumont believes the inquiry will ease any concerns in the community about competition and innovation in the banking industry.
He says New Zealand banks are highly regulated, well capitalised, and profitable. “That helps makes them resilient, and with recent overseas bank failures we’ve seen that’s important.
“Our banks are transparent, and will engage constructively with the Commerce Commission,” Beaumont says. “We have a competitive banking sector, with 16 retail banks operating in New Zealand.
He says banks are among the country’s biggest businesses so their profits look big. “They also contribute their fair share to New Zealand.
“Last year banks made a net profit of $7.18 billion. They also spent $9.1 billion running their businesses and paying tax here. That’s a net positive contribution of $1.92 billion – before you take into account the contribution banks make in funding household and business needs, to the tune of $535 billion. Providing a return to shareholders helps maintain their investment in New Zealand, and ultimately some KiwiSaver funds share in those returns.”
“In recent years we have seen bank teams tied up with significant regulatory requirements, limiting the ability to focus on new product development. We hope the Commerce Commission will look closely at the regulatory environment as part of its study,” Beaumont says.