Culture and conduct not part of bank competition study

Finance Minister Grant Robertson wants to make it clear the Commerce Commission banking study is not about bank conduct and culture.

“The Financial Markets Authority and Reserve Bank carried out an investigation in 2018 into this issue which has already resulted in a number of measures to protect consumers,” he says.

Commerce and consumer Minister Duncan Webb, who announced the study with Robertson, says it is only about banking competition issues and is a first step.

As part of the study, the commission will examine banks’ profitability and other financial measures to assess competition in the sector.

Commerce Commission chairman, John Small, says the competition study will be a first for New Zealand – providing a deep and focused analysis of how consumers’ diverse needs for personal banking services are being met.

He says New Zealanders should be able to be confident they are getting great value, clear choices, and innovative offerings in their banking services.

“This sector is hugely important to New Zealanders and the broader economy. We know there is public interest in seeing how competition is delivering for consumers in accounts, lending, and deposit-related products and services – and whether people can switch providers easily.”

Bankers Association chief executive Roger Beaumont says switching banks is easy.

“A customer’s new bank can arrange everything including transferring funds from the previous bank and setting up recurring payments to new accounts.”

Beaumont says this can be done within five working days, and people don’t even need to talk to their previous bank.

Small says the commission already knows that pretty much every household in New Zealand has a bank account and debit card, nearly 60% have a credit card, and the residential mortgage market accounts for $346 billion in overall lending.

The study will assess whether there are barriers or behaviours that are preventing competition from driving providers to offer the quality and services consumers should expect.

Focus area of study

Potential areas of focus for the study are current accounts, deposit accounts, and overdraft account services, personal loans, and mortgage and credit card lending.

There will be less of a focus on financial services such as KiwiSaver, wealth management, insurance, and foreign exchange, Small says.

“The proposed terms of reference for the Commission’s study have been drafted flexibly to allow consideration of further products and services as appropriate, such as broad, cross-portfolio assessments of banks’ financial performance.”

While the study is firmly focused on the process of competition, it will also consider some outcomes, including bank profits. Small says there are plenty of profit indicators already available and  in this part of the study, the commission will focus on assessing those and their potential interpretations.

Next steps

Stakeholders and interested parties, including bank customers, will be able to have a say after the release of a Preliminary Issues Paper by August.

This paper will set out the areas the study will consider, including the structure of the industry and the nature of competition in personal banking, the conditions of market entry and expansion, consumer behaviours and preferences, and other areas that might be explored.

The commission has to prepare a draft report and release it to the public for consultation, allow a reasonable time for comments and take them into account before finalising its final report for the study.

The final report will include the commission’s findings and may include recommendations.

Any recommendations are non-binding, but the Government must respond within a reasonable time.

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