Parliament could start its own probe into business and rural lending as early as August, while Coalition parties jostle for the spotlight

Parliament's Finance and Expenditure Committee (FEC) could begin its inquiry into the rural banking sector before the end of August, with the terms of reference being set next month.

Already, the proposed inquiry has demonstrated the political tensions existing within the governing Coalition and has the potential to cause more controversy. 

New Zealand First negotiated for a banking probe to be included in its coalition agreement with the National Party, despite possible duplication of the Commerce Commission’s market study.

Back in February, Commerce and Consumer Affairs Minister Andrew Bayly said the Government intended to wait until the market study had been published before launching the Parliamentary inquiry. 

It was expected to review the findings of the study and potentially drill deeper into banking sectors that were not included in the report, such as business and farm lending.

But on Tuesday, FEC chairman Stuart Smith told Interest.co.nz the committee now planned to set the terms of reference in July and call for submissions shortly thereafter.

This means the Commerce Commission’s final report on personal banking services, due on 20 August, may be published by the time the committee begins its hearings. 

It appears the inquiry may have been brought forward by pressure from rural activists to conduct a specific probe into rural banking. 

The war for farmers 

Federated Farmers have been lobbying for an inquiry since before the election and Parliament's Primary Production Committee had been conducting an informal briefing on the subject.

During Fieldays, Finance Minister Nicola Willis wrote to the chairs of the Finance and Primary Production committees asking them to run a joint-inquiry led by the FEC, which is chaired by National's Smith.

The reaction from Federated Farmers and the Act Party’s Mark Cameron, who chairs the Primary committee, was lukewarm.

Cameron “acknowledged” the request for a joint-inquiry and said his rural lending briefing had demonstrated the need for more scrutiny on the sector.

Meanwhile, Federated Farmers questioned “how rural” a probe led by the FEC would be and asked for assurance that “real gumboot-wearing MPs” would get to ask banks questions. 

“Farmers have been very well served by the MPs on Parliament’s Primary Production Select Committee, who initiated a briefing into rural banking at Federated Farmers’ request,” it said in a statement.

One person familiar with the rural banking sector suggested this may reflect ongoing competition between National and Act over who was the ‘Party of the Farmers’.

Federated Farmers has become very close with the Act Party and its former chief executive, Andrew Hoggard, has become an Associate Minister of Agriculture under the party’s banner. 

National has traditionally represented farmers in Parliament and has been pushing back on Act’s attempt to consolidate its support in rural communities.

Having the banking probe led by the FEC means a National Party MP will be chairing the process, with the Act Party-led Primary committee playing more of a supporting role.

Populist pushback

NZ First welcomed the Parliamentary inquiry more enthusiastically. It sent an email to supporters promising to challenge bank leaders and asked for donations. 

“Kiwis have the right to work hard and get ahead without being ripped off at the ATM. We must focus on rebuilding the economy so that we can lift incomes and living standards”.

“This inquiry will ensure that the chairpersons and chief executives of banks operating in New Zealand are made available for questioning — and we will hold them to account for you,” it said.

Willis’ letter requesting the probe specified that bank’s chairs and CEOs should be asked to appear before the committee. 

This has led to some concern the inquiry may be more political than usual and possibly be used as a way to pander to voters that are unhappy with high interest rates.

Smith told Interest.co.nz the inquiry wouldn’t become a witch hunt and would earnestly seek to better understand the market surrounding business lending.

“Beating up on the banks doesn’t do anything — even if they deserve it, which they may or may not,” he said. 

Instead the committee would be asking if there was a market failure somewhere and, if so, how best to fix it.

Worth a look

Economist and business consultant Cameron Bagrie told the Of Interest podcast the rural and business lending sector was less transparent than its retail equivalent.

It was worth the FEC taking a look at why banks appeared to be getting a strong return on equity without experiencing much volatility in their earnings. 

“What we are seeing is that SMEs and farmers are certainly being priced for risk but how much risk are banks actually taking,” he asked. 

Bagrie would like the committee to ask banks to break down their return on equity in different market segments: personal, business, farming, and institutional lending. 

“And, I think we are going to be surprised how high those ROEs are for certain segments,” he said, as it was possible that higher farm and business margins were boosting overall returns.

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