The Co-operative Bank says its low-profit approach to banking means it does not fear taking on the big players.
New Zealand’s banking industry is dominated by the Australian-owned big four, ANZ, Westpac, BNZ and ASB, which account for 85% of all bank lending, compared with New Zealand-owned banks’ 9%.
Bank profits for the first time topped $7 billion in 2022, the recent KPMG Financial Institutions Performance Survey found, and the industry is under scrutiny for its bumper profits while New Zealanders face a cost of living crisis.
It appears likely that new Commerce Minister Duncan Webb will order the Commerce Commission to undertake a market study into competitiveness in the sector.
On the record Webb has said no decision has been made, and that 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 Co-operative Bank, which is owned by its customers, said it was interested to watch how the market, and particularly customers, respond to the idea of a market study.
“The NZ banking sector is dominated by large banks who have around a 90% share and are very profitable due to their scale, we could see why the Commission may want to look there.”
The bank said in an emailed statement, that unlike some other small NZ banks, it doesn’t require the same level of profits. As a co-operative, the bank was “comfortable making a sustainable modest return, a portion of which is returned to our customers by way of rebate”.
It had returned more than $15 million to its customers since 2013. In 2022 it paid out $2.5m to customers. In the December 2022 quarter the Co-operative Bank made net profit after tax of $4.8 million.
Market study solution?
Banking professor David Tripe has warned that a price war between the big four banks could see less competition in the sector as small banks could struggle to compete.
But the Co-operative Bank said its low-profit approach meant it could be very competitive on prices for customers, and therefore, did not fear taking on the larger players.
“Our values, which include fairness, ensure we offer fair deals to lending and deposit customers, both new and existing.”
A scan of some of the offers the Co-operative Bank has in the market shows its competitive with its peers, with a similar interest rate offered for online savings accounts to ASB of 1.8% and a 12-month term deposit rate on par with BNZ’s offering of 5.5% with a minimum $2000 deposit amount.
For mortgages it and ANZ are both offering five-year terms for 7.09%.
Massey University academic Tripe has also cautioned that small banks are more affected by regulation and demands for technology upgrades.
Tripe said the combined effect of increased regulation and technology demands were making it difficult for smaller banks to compete.
The Reserve Bank regulates banks, insurers and finance companies and is responsible for “maintaining a sound and efficient monetary and financial system”.
A Reserve Bank spokesperson said as a part of its policy-making approach it critically assesses whether the total benefits to society of any interventions exceed the total cost.
“As a member of the Council of Financial Regulators, we are working together to ensure that regulation of the financial sector is effective and the cost of complying with regulation is proportionate to the outcomes sought.”
The spokesperson said conduct, prudential and competition policy and tools were all important elements of the regulatory regime that supported the financial system to promote wellbeing and prosperity.
It said in 2018, it had completed a joint review with the Financial Markets Authority (FMA) into the conduct and culture of New Zealand's 11 largest retail banks.
“Although we are not currently planning another conduct and culture review, we note that the Conduct of Financial Institutions (CoFI) regime, expands the FMA’s mandate as a conduct regulator to include financial institutions, and confers new responsibilities in terms of licensing, monitoring and enforcement, with licensing commencing in July 2023, and obligations due to take effect in early 2025."
The CoFI regime introduces a new regulatory regime to ensure registered banks, licensed insurers and licensed non-bank deposit takers comply with the fair conduct principle when providing relevant services to consumers.
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