Banking review finds reforms may entrench status quo
The Reserve Bank should set up a new Prudential Policy Committee to monitor market efficiency, according to a cross-party inquiry into banking competition.
Parliament’s finance and expenditure committee has released its report from the inquiry but acknowledged its findings will not be new to the sector and are unlikely to be a silver bullet for competition, RNZ reported.
The committee met over 13 months, hearing from 216 organisations and individuals.
The inquiry comes amid heightened focus on banking sector competition following the Commerce Commission’s earlier market study, which reached similar conclusions about the dominance of New Zealand’s four major banks.
Together, Westpac, ANZ, ASB, and BNZ control around 90% of the market.
Profits and regulation under scrutiny
The inquiry found the big four’s focus on lower-risk activities like retail banking would usually deliver lower returns, but they were more profitable than international peers. The banks rejected that conclusion, arguing profits reflected their strong capital positions and financial stability role.
The report also noted that current regulatory settings place higher costs on smaller banks and non-bank deposit takers, making it harder for them to compete.
Among its 19 recommendations, the report called for banks to disclose profitability on everyday accounts, standardise processes for business and home lending, and adopt digital tools to make comparisons easier. Lowering barriers for overseas banks and fintechs, and reviewing climate disclosure rules, were also suggested.
Māori representation and service standards
The inquiry highlighted a lack of representation of Māori needs in the financial sector. It recommended voluntary service standards and the removal of anti-money laundering compliance barriers for Māori land trusts and organisations with multiple owners.
Some recommendations already moving
Committee chair Cameron Brewer said several recommendations were already in play.
The Reserve Bank is reviewing capital settings for deposit takers, while Cabinet has approved a $500 million capital raise for Kiwi Group Capital to fund Kiwibank’s growth.
The report also suggested the Reserve Bank halt planned increases to capital requirements and establish a Prudential Policy Committee to sit alongside the Monetary Policy Committee.
“We know that our summary of some of the key issues will not be new information to the finance sector. Our recommendations are also unlikely to be a silver bullet for competition,” the report said.
Opposition parties pushed back on parts of the report. Labour said the focus on prudential rules distracted from the real competition issue, while the Greens and Te Pāti Māori opposed relaxing capital rules and want Kiwibank to remain Crown-owned.
Green Party co-leader Chlöe Swarbrick said the recommendations were “relatively helpful, but don't go far enough,” adding it was a “hugely missed opportunity.”
Government response
The government has 60 working days to respond. Finance Minister Nicola Willis (pictured) said the report would support efforts to improve competition, including open banking and ensuring Kiwibank has scope to grow.
“This includes open banking, competition in prudential policy decision-making, and giving Kiwibank scope to raise capital to become a disruptive competitor,” she said.
What this means for mortgage advisers
For mortgage advisers, the report confirms the dominance of the big four will remain in place for now.
Advisers can play a key role in helping borrowers navigate limited competition, compare products across lenders, and highlight opportunities with Kiwibank or smaller banks.
Any regulatory changes to ease entry for new players or support fintechs may eventually expand borrower choice, but advisers remain essential advocates in the meantime.
Click here for the RNZ report.
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