Economist Shamubeel Eaqub says New Zealand banks have avoided proper scrutiny for too long and he’s backing a market study to investigate record profits in the sector.
Eaqub, economist at Sense Partners, first called for a market study into banking in 2018, arguing NZ bank profits were excessive and it was “high time for the government and regulators to get tough”.
Since then bank profits have continued to grow, with the country's biggest bank, ANZ New Zealand, reporting its annual profit topped $2 billion for the first time in 2022. Westpac saw its profit break $1 billion in 2022, an increase of 12%.
NZ has 27 registered banks but four of them, ANZ, ASB, BNZ and Westpac, account for 85% of all bank lending.
Eaqub said a market study by the Commerce Commission into the banking sector would be a good start.
ANZ said in an emailed statement its profit needed to be viewed in the context of its size.
"ANZ’s capital is around half of the NZX top 10 companies combined, so we are large, and that is reflected in the size of our profits. However, our level of profitability is roughly on par with them ... While our profit was higher in 2022, we are also carrying extra capital. Our returns are still lower than what they were in 2019."
Commerce Minister Duncan Webb, who would need to request a study from the Commerce Commission, has said no decisions have been made about the next market study, but he was focused on using market studies to ensure markets operate fairly for consumers.
"I am particularly interested in improving markets where the greatest long term gains can be made for ordinary New Zealanders.”
The Commerce Commission has completed market studies into the grocery sector and residential building supplies.
Self-appointed watchdog Monopoly NZ, founded by businessman Tex Edwards, has come out in support of a probe into banking.
Edwards said Monopoly Watch believed the banking sector had enjoyed excessive profits at the expense of ordinary New Zealanders, and had proven resistant to competitive pressures.
He told media bank profits were costing New Zealanders $2000 a year.
A market study should look at what can be done to help bank competition from new entrants and why Government-owned Kiwibank had “failed to ignite competition in the banking sector”.
Any market study commissioned by the Commerce Minister should look into the structure of the NZ retail and small business banking industry at both the wholesale and retail levels, he said, and the nature of competition at the wholesale and retail levels.
It should also consider what is OECD international best practice in banking competition, and what model should NZ base its reforms and aspirations around.
Bad for small banks?
Massey University banking professor David Tripe said a pricing war between the big banks could come at expense of small banks, and decrease competition.
Tripe said costs were higher for small banks in New Zealand and they were less able to spread costs across a smaller customer base, and would likely be unable to compete if the big banks aggressively undercut each other.
"[Small banks] can't afford prices to move against them. So the question is, to some extent, if you think the big bank profits are too high, do you want to close the small banks down?"
Regulation could be one area where pressure and costs on smaller banks could be eased and improve competition, he said.
The combined effect of increased regulation and technology demands were making it difficult for smaller banks to compete.
"I'm not sure that the government really appreciates the extent to which that might be a problem."
Eaqub said beefing up regulatory capabilities at the Reserve Bank of New Zealand and Financial Markets Authority into bank conduct could be even better than a study, if done well.
“But these organisations must be held accountable, not just a rubber stamping board such as the RBNZ.”
The New Zealand Banking Association said any decisions about this would be a matter for the government.
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