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The terms of reference for a parliamentary banking inquiry are out, with the deadline for submissions September 25.
Led by Parliament's Finance and Expenditure Select Committee, the inquiry is being held alongside the Primary Production Select Committee with terms of reference developed by both.
Stuart Smith, National MP and Chairman of the Finance and Expenditure Select Committee, says the inquiry aims to ensure New Zealanders have access to bank services at competitive prices and that regulation imposed by the likes of the Reserve Bank isn't unduly influencing the cost of borrowing.
"We want to ensure that the profits banks are making are justified and comparable to banks in similar jurisdictions, particularly in rural banking and if not, why not," says Smith.
"This inquiry comes at a critical time for farmers, who are facing tough conditions, especially after recent droughts. The committee seeks to address concerns that rural communities may be paying more than they should for banking services."
Farming lobby group Federated Farmers welcomed the broad scope of the banking inquiry, saying it will leave banks with nowhere to hide.
"This inquiry is well placed to shine a bright light on parts of our rural banking system that, until now, have been allowed to operate in the shadows," Federated Farmers banking spokesperson Richard McIntyre says.
The terms of reference are detailed below, with more information here.
Inquiry into banking competition
The terms of reference for the inquiry were finalised in consultation with the Primary Production Committee and are as follows:
The state of competition in banking, including:
- The price of banking services, with a particular focus on business and rural lending products.
- Profitability in banking, how it has changed over time, and how it compares to other OECD economies.
- The return on capital from business, rural, and residential mortgage lending; the level of interest rates charged to each sector; and an assessment as to why there has been a change in the proportion of lending to the productive sector relative to residential mortgage lending.
- The effect of any bank lending policies relating to borrowers’ emissions that result in additional lending costs and/or lending restrictions.
- The level of customer “switching”, how this has changed over time, and how this compares to other countries.
Barriers preventing competition in banking, including:
- Any limits on the growth of non-bank deposit takers.
- Any restrictions on overseas investment/new entrants, including fintechs.
- Any outstanding constraints on the use of technology and open banking.
- The role of KiwiBank as a competitor.
Any possible impact of the regulatory environment on competition and efficient access to lending, including:
- Any impact on the allocation of bank lending by sector, such as business, rural, and residential mortgage.
- The role of prudential regulation and any impacts on risk allocation, smaller banks, and non-bank deposit takers (NBDTs).
- The role of bank regulators (FMA, MBIE, RBNZ) and whether the regulatory environment can be simplified.
- Determine how and to what extent the RBNZ’s capital requirements and credit risk models influence lending rates (see emphasis in Rural Banking section).
- Climate related disclosures.
- Whether the RBNZ’s focus on “financial stability” impeding the development of competitiveness, particularly amongst NBDTs and existing / potential fintechs.
Rural banking:
- Determine how and to what extent the RBNZ’s capital requirements and credit risk models influence lending rates to agriculture and horticulture businesses.
- Ascertain whether the RBNZ’s approach to greenhouse gas emissions risk, including risk of government policy, has and is likely to result in further increases in lending rates to the agriculture and horticulture sectors.
- Ascertain whether bank environmental and sustainability policies have or are likely to result in further increases in lending rates to the agriculture and horticulture sectors.
- Ascertain whether there is adequate transparency on lending rates for rural, residential, and business lending.
- Access to banking services, including access to cash services, especially in rural areas.
Lending to Māori asset-holders, organisations, businesses, and individuals:
- Ascertain what is the experience of Iwi (organisations and asset holders) and Māori (asset-holders and businesses) accessing banking products and services.
- Investigate whether banks are unreasonably resistant to accepting Māori land as collateral for borrowing.
- Investigate whether banks’ processes and procedures contribute to the Māori individuals and households having a disproportionately low rate of home ownership.
In each of these areas the committee should, where relevant, reference the findings of the Commerce Commission’s study into banking competition.
15 Comments
"How the housing sector survived without trillions of dollars in Fed manipulation is a mystery, as the Fed buying trillions of dollars of mortgage-backed securities (MBS) is now the permanent policy, and reversing that "support" would unleash frighteningly uncontrollable market forces. We're now so high on...rate cuts incoming!--that we don't even notice that speculation has replaced productivity growth as the source of "wealth"
https://www.oftwominds.com/blogaug24/destroyed-saved8-24.html
"...why banks favour housing lending over lending to 'the productive sector'"
As if we need an inquiry to explain the risk/return on 1. residential mortgages which borrowers are liable for until bankruptcy 2. commercial loans to limited liability companies who can walk away (note these are usually secured against residential property in NZ)
The only meaningful change dynamic ss to have no recourse mortgage loans as USA. When the banks have their own skin in the game their risk appetite will be much lower, as will follow through to house prices
Answer is easy isn't it? If you were running a business and had some money to lend, would you lend it to someone buying a house (and you get to take security over that house), or would you lend it to a business or farmer where the ability of the business or farmer to repay you is at the mercy of micro and macro-economic conditions, and the valuation of the underlying assets tend to be more volatile than bricks/mortar. I would be lending to the individual buying the house every day of the week, or if I did decide to lend to business or farmer I would charge a higher rate due to higher risk, which is exactly what the bank is doing?
Yes, this may be what is happening, but what should NZ want to happen? It seems some regulation is required, and the easiest way to do that is to regulate the terms of lending to housing, e.g. by setting DTI and LVR limits to meaningful levels when the lending is applied to buying existing houses (e.g. DTI < 4.5 and LVR < 65%)
What the banks behaviour in the change in their lending portfolio is showing us that they wish to avoid risk at all costs, by having ~70% of their lending portfolio to residential mortgages. Perhaps in todays day and age everyone has become timid and risk averse, preferring safety and comfort over creativity and ideas. In the end ift is whatever makes the most profit with the least risk and keeps the shareholders happy and the execs pockets full.
The problem we have is the so called Government don’t even know what’s going on eg Cook Straight Ferry, therefore why are they elected, we want personnel who are ALREADY experience in what’s going on to Govern
Kick out the current govt & elect the people who have the experience required
What if the banks decide they don't want to lend anymore to the rural side - even if ratios were lowered as they perceive the risk to be to high themselves?
Who replaces them?
All very well to bang them on the head but if they decide to leave you had better have another option and I havn't seen to many lining up to lend, even with very high returns apparently. What if the next lot want an even higher rate to account for the risk they see?
It's simple.
Ban recourse mortgages. No banking institution should be able to chase someone forever to recover a mortgage, its simply insanity and a major reason banks much prefer house lending - it's so much more secure.
Have non-recourse mortgages only, then people can walk away from a house and a mortgage. This will make house lending and business lending closer in terms of risk.
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