The fact that it’s an election year across the Tasman helps explains the New Zealand’s government decision to hold an inquiry into its Australian-dominated banking sector.
It’s a fairly anodyne probe – looking at profits/margins, account switching etc. – none of the tougher issues that the Hayne Royal Commission examined in its inquiries here into the activities and behaviour of financial groups, from insurers to super funds, banks and financial advisers or all types.
But the NZ government has effectively kicked the inquiry past the October 14 election and into 2024 for the new government to deal with.
That means any criticism of the government before the poll on the issues like rates, lending policies and profits can be deflected by the phrase “we’ve called an inquiry”.
The rationale for the probe – that lenders are making excessive profits – would not be out of place here in Australia at the moment given the way the banks have shoved up rates in the wake of the dozen rate rises from the Reserve Bank in trying to protect their NIMS (net Interest margins) by being slow to boost deposit rates (until forced by public pressure).
But bank profits have been under the spotlight this year on both sides of the Tasman. In Australia is an everyday moan (justifiable in many cases) from consumers and other critics. In NZ some local arms of Australian banks hit record figures with data from KPMG in March showing banks had lifted their margins to generate a record $NZ7.15 billion in after-tax profits last year.
That was out of a total for the big four Australian banks from all sources of close to $A30 billion.
But the inquiry will put our big four banks – the Commonwealth, Westpac, NAB and ANZ – on the spot seeing how they dominate the Kiwi banking market with an 85% market share in mortgages and 90% in deposits.
That’s greater than their hold on the Australian banking market where there are far more smaller rivals such as Bendigo and Suncorp Bank (which ANZ wants to snaffle) and a growing band of small fintechs like Judo Bank.
The NZ government said in announcing the inquiry that cabinet has agreed to a market study into competition in the sector for personal banking services to ensure it is working well for New Zealanders.
In reality cabinet decided to use an old and tested way of kicking a difficult issue down the road and well into 2024.
Finance minister, Grant Robertson, said it will be conducted by the competition watchdog, the Commerce Commission, and completed by August next year.
New Zealand lagged other countries such as Australia and the United Kingdom in doing a detailed analysis into banking services, he said.
A preliminary report would set a clear signal of direction for the study, and might uncover discrete issues which the Government could take steps to resolve, ahead of the final report, Robertson said.
Areas for consideration are: The structure of the industry and the nature of competition, any barriers to consumers comparing bank offers or switching banks, any impediments to new or innovative banking products or services and comparative indicators of bank financial performance (including profitability).
The New Zealand Banking Association CEO, Roger Beaumont said banks would engage constructively with the Commerce Commission inquiry (as they would).
“We believe the inquiry will ease any concerns in the community about competition and innovation in the banking industry,” he said. “We have a competitive banking sector, with 16 retail banks operating in New Zealand and easy bank switching.”
Of concern to NZ bank critics is why the New Zealand subsidiaries of Australian banks make higher profits per customer than they do in Australia. Unlike Australia, the big four banks are the most profitable companies in NZ. In Australia they are in the top half dozen with BHP and Rio Tinto topping them.
This inquiry will be nothing like the Hayden Royal Commission which focused on conduct and behaviour of banks and financial services groups such as fund managers and wealth groups (Like AMP) and insurers (like IAG) as well as all major banks.
The performance of managers and boards was also examined and many of the companies which were found to have deficiencies and worse in their behaviour and management lost directors, CEOs and other senior executives.
Nothing as drastic as that is seen emerging from the NZ inquiry.