Finance Minister Nicola Willis and Commerce and Consumer Affairs Minister Andrew Bayly say they will act on all 14 recommendations in the Commerce Commission’s final report into competition for personal banking services.
Their response includes Willis asking Treasury to work with Kiwibank’s parent company, Kiwi Group Capital, to provide advice before the end of 2024 on options for raising new capital, including from KiwiSaver funds, New Zealand investment funds and investment from regular New Zealanders.
This comes as the Commission recommends the Government, as Kiwibank's owner, considers what's necessary to make Kiwibank a disruptive competitor to ANZ, ASB, BNZ and Westpac, including how to provide it with access to more capital.
"I share the Commerce Commission’s vision for a stronger, more disruptive Kiwibank. I want it to have the growth capital it needs to become a ‘maverick’ that exerts real competitive pressure on the big four," Willis says.
"Kiwibank is currently focused on its own digital transformation and so I would expect that any capital raising wouldn't occur until 2026 at the earliest."
The Commission also wants industry and the Government to ensure open banking is fully operational by June 2026. Willis and Bayly note the Government is progressing the Customer and Product Data Bill and will consult on a designation for banks, detailing how they must comply with new data sharing requirements.
"The Government expects the banking designation will enable open banking to be operational well before June 2026. Industry has committed to start implementing open banking, starting this year with the four major banks," Willis and Bayly say.
"We agree with the Commission that open banking has the greatest potential to promote ongoing disruptive competition in the medium to long-term and are committed to facilitating its uptake as quickly as possible," adds Bayly.
Willis notes another set of Commission recommendations relates to Reserve Bank policies and decisions, concluding the Reserve Bank can and should place greater emphasis on competition.
"I agree and I intend to issue a new Financial Policy Remit this year to make clear the Government’s expectation that the Reserve Bank, in its policies and actions, supports a more competitive banking sector," she says.
The response from Willis and Bayly says they support the market study finding that the Reserve Bank should review its settings for standardised risk weights taking into account impacts on competition, as well as the restrictions on the ability of some entities to market themselves as a bank.
The Commission's calling for "more granular standardised risk weightings" for home loans, setting minimum capital standards that encourage new competitors, and permit more entities to be a bank and provide banking services. Risk weightings are used to link the minimum amount of capital banks must hold, with the risk profile of the bank's lending activities.
Big bank profits 3% of GDP
Willis says the Organisation of Economic Co-operation and Development (OECD) noted this year New Zealand is characterised by a limited number of large firms and often faces weak competitive pressures to innovate, seek efficiency and provide better services and lower prices to consumers.
"It [the OECD] has noted that in 2022 the recorded combined profits of the big four banks amounted to around 3% of our Gross Domestic Product. That is more than the electricity market, supermarket and construction sector combined. Seen in this light, the Government's reforms to drive banking competition are an absolutely critical part of our economic growth programme," she says.
"Our government is committed to delivering a more competitive banking sector so that New Zealanders can get a better deal. We do not intend to put this report on a shelf somewhere."
Willis says the Commerce Commission has proven what has been long-suspected, that NZ’s banking sector is uncompetitive, and Kiwis are not being well served by a highly profitable, two-tier oligopoly.
"Today’s report calls-out the market behaviour of New Zealand’s big four banks: they are highly profitable compared with international peers, they lack innovation and do not aggressively compete for customers."
"Instead, ‘competition’ between them resembles a cosy pillow fight, with profit margins coming first and everyday Kiwis coming second," she adds.
"As a result, New Zealand bank customers are getting a raw deal: they face higher prices, fewer choices, and poorer service, even when compared to customers of the same parent banks in Australia."
"This is not good enough. Our government will inject some genuine competition into the market for the benefit of all New Zealanders, and will respond with urgency to all 14 of the report’s recommendations," Willis says.
'Our Reserve Bank is particularly conservative'
In terms of the Reserve Bank Willis notes while its task of maintaining financial stability is "critically important," its settings are conservative by international standards.
"The judgment this report essentially makes is we've got the balance too far in favour of financial stability [over competition] such that it's making it almost impossible for new entrants. What the OECD and others have observed is that actually relative to other regimes, our Reserve Bank is particularly conservative. And that is partly because of the guidelines government has given it. And so we have to look at those guidelines and understand how that might alter its decision making," says Willis.
"I agree with this report. We've let the balance go so far that in fact we're promoting financial stability at the cost of competition. And that's led to a situation which has made the oligopoly at the top incredibly cosy. It's made it almost impossible for new entrants to compete in this market and that is a disservice to New Zealanders. So in that balance, I don't think we've got it quite right now and we owe it to Kiwis to have another look."
Mortgage brokers in sights
Bayly notes the Commission found mortgage advisers are aligned with the banks and often only put forward one home loan offer to their clients.
"I will be encouraging the Financial Markets Authority to pull every lever they can to ensure mortgage advisers are transparent about who they act for and what commission structures are in place," he says.
'Our government won't be cowered by the big four banks'
The Commission's market study, focusing on home loans and deposit accounts, was launched on June 20 last year by the previous Labour government. The new government has also launched a parliamentary select committee banking inquiry for which the terms of reference were released last week, with submissions due by September 25 as the year of bank probes gathers pace. The parliamentary inquiry will be broader, also looking into business and rural banking. One of its terms of reference is the Commission’s findings should be referenced where relevant.
Willis suggested she's looking forward to the big bank bosses appearing before parliamentary select committees.
"My view is that New Zealanders expect banks to provide fair, competitive, good services and we view banks as playing a crucial role in the productivity of our economy, of our livelihoods, of jobs and incomes. And so when banks go in front to the select committee inquiry, I think New Zealanders will expect them to outline how they meet those expectations," she says.
"The bank lobby may be strong, but democracy is stronger and our government won't be cowed by the big four banks."
RBNZ considering widening the use of the term ‘bank'
For its part, the Reserve Bank says it welcomes the Commission's work on personal banking studies.
"Healthy competition between banks has an important role in supporting an efficient, inclusive, and dynamic financial system. We are considering the report’s findings, as well as the Government’s initial response," Reserve Bank Deputy Governor Christian Hawkesby says.
"We note that the Commission recommends the Reserve Bank places a greater emphasis on competition in specific upcoming decisions. Under the new Deposit Takers Act (DTA), we must have regard to competition in undertaking regulatory functions. We have recently published our proportionality framework, that ensures our standards are tailored to the size and nature of different deposit takers."
"We are consulting on graduated minimum capital requirements across groups of deposit takers, and potentially reducing the minimum (dollar amount) of capital required for new entrants. We are also considering widening the use of the term ‘bank'."
"We strongly support the report’s recommendations on open banking," says Hawkesby.
And in comments attributed to its Chairman Neil Quigley, the Reserve Bank says it welcomes Willis' review of the prudential regulator's Financial Policy Remit.
"The Remit is an important tool for the Minister to specify matters the Government considers the Reserve Bank should have regard to in achieving its financial stability objective and performing its functions as a prudential regulator and supervisor," Quigley says.
Roger Beaumont, Chief Executive of bank lobby group the New Zealand Banking Association, says the Commission took a "well-informed and considered approach" to the market study, providing useful insights into the banking sector.
"We’re particularly pleased to see the Commission’s focus on the regulatory environment in which our banks operate, and how that impacts further competition in the sector. We look forward to seeing how the government and regulators respond to the Commission’s recommendations. We support quality regulation that makes banking easier for consumers," says Beaumont.
"There are also matters for the banks and the wider financial services industry to consider. We will assess which initiatives could involve an industry approach, and which ones banks will need to address individually."
There's more detail on the Government's planned responses to the Commission's recommendations here. And there's more on the Commission's final report here.
85 Comments
Open banking will not start here in 2026 - the big banks have been dragging their heels for years and it should have been operational by now?
Unlike Australia - The Consumer Data Right (CDR) officially launched in Australia on 1 July 2020. With banking as the first sector to go live, Open Banking is here and is a game changer for the financial sector in Australia.
I think you are misrepresenting the benefits seen in Australia. Linked article below shows $1.5bn spent on CDR to-date in Australia, with nothing major to show for it, and certainly nothing to suggest it has been a game changer. Also, Kiwibank has been fighting very hard to be kept out of the open banking commitments, which would indicate they don't see any real benefit to them?
I saw Jamie Dimon, the CEO of JPMorgan & Chase, saying they are putting money in Brick-and-Mortar now, expanding their branch network in small towns.
Apparently they've worked out that that most of their new customer growth still comes from they physical branch network and when they ran the analysis they realised their growth rate would be much lower if they didn't go back to local banking. So they've put a pound in the ground on new branches.
Dimon has a pretty good track record now.
Even 3 waters. All expenses paid trips to Spain and other generous rebates schemes from certain suppliers given to civil contractors who perform civil work on behalf of ratepayers/taxpayers.
Companies who can offer competing products but might not have the scale of operations and cashflow to compete in the gratuity industry end up missing out on work as the decision on which supplier to run with is often decided by the size of the kickback.
One supplier even has a VIP app that tracks spend and tells the user what they need to spend in order to reach the next "tier". Imagine how many jobs are awarded solely on that basis? These jobs are paid for by the taxpayer/ratepayer, it just the materials initially go through a contractor's account.
Frank is having vision problems from a vitamin D deficiency. He'll be blaming Labour for that too until National tell him it's actually summer.
He missed the report Willis is asking for from Kiwibank, and an inquiry they have opened - so basically a report on the report and a report-in from the banking sector. So basically, nothing but blah blah blah.
Geof Mortlock (ex RBNZ and APRA) has launched a petition to Parliament that some may wish to sign https://petitions.parliament.nz/a6c07e72-ef48- Link
Ah, yes. Another politically unpalatable set of recommendations that will be acted on in due course. (read that as soon as the Real Estate and Solicitors changes are due to come in. Never). But FWIW the hard work and controversy will be duck-shoved onto the only entity the Government(s) use to lay blame anywhere but at their doorsteps. "Hello, Adrian? Nicola here. Would you pop by for a quick chat this afternoon, please?"
"... the Reserve Bank can and should place greater emphasis on competition. "
Most important reforms by far are missing:
- remove taxation on "profits" from Cryptocurrencies to allow them to be used as currency without absurd levels of hassle. No good reason for these, they aren't profits they are shifting exchange rates. Severely hampers ability to use as currencies.
- Legally guarantee the right to self-custody (govt can't stop it anyway but be a good signal). People should be allowed and encouraged to "be their own bank".
Any serious disruption of banking sector (especially cozy relationship between central banks and big private banks) will require alternatives in the marketplace for currency. It will be good for >99% of NZers to have these options by instilling more discipline on banks and the RBNZ.
Markets work. Force central banks & banks to compete in this incredibly important market to start seeing real change.
Spot on.
The competition isn't to be found playing within 'the intranet of banks', it's them actually becoming brave enough to engage with onchain finance.
We need consumer apps that allow people to borrow against assets other than basic shelter. We need deterministically insured and/or auto-compounding versions of the NZD. You know, actually novel financial products, not, "It now takes two business days to switch between banking interfaces."
We need consumer apps that allow people to borrow against assets other than basic shelter
I'm not sure that making it easier to borrow against assets for the average punter without as much scrutiny is a positive thing for economic stability. Would this not simply lead to a greater level of debt and demand on future resources of which we are in a never ending issue currently globally?
Well you either let people who can't afford a house deposit participate with lesser quantities of savings, or, you restrict the degree to which home-owners can daisy chain their equity. I'd love the latter, but as far as I can tell, the populace has zero interest in even having a such a discussion.
The better point of what I'm saying though is you already *can* securitise other forms of property, like Ether, various stablecoins, and eventually Decentralised Traded Funds. That is if you know how to use onchain financial applications. It's not a "we should let them or not" kind of situation. It will happen, given enough time. In the case of Ether even, you can use a platform like Liquity to take out a 0% loan, assuming you pay an upfront fee. Within the traditional finance world, such a model doesn't even exist, so it's hard to reason about economic stability when you're talking completely novel (and might I add, transparent) ways of borrowing and lending.
But to answer what you're getting at, yes, it probably means more debt, though we do live in a Credit Theory of Money system...
Well you either let people who can't afford a house deposit participate with lesser quantities of savings
We've started with DTI's, and given time the market will drop further by means of those no being able to pay the asking prices will eventually lead to vendors meeting the market. Adding the ability for people to get a mortgage with less deposit only increases risk, and we have already plenty of data to show that humans aren't that great with managing risk, especially when there's financial incentive not to be (socialising losses). The financialisaiton of the world is more of a parasite of human psychology that has been allowed to prosper at the expense of the many.
I should clarify, when I said 'participate' I didn't mean within the housing market, I meant for other purposes - business, investment, so they don't have to sell assets to get by, etc. I don't think we're in disagreement here on that topic.
Morality of debt aside, I don't really view the matter as *more* financialisation, more finding ways to provide access to the kinds of exclusive financial products home owners and the established wealthy have always had access to.
It's great that we can sit around and acknowledge there are problems (as you say, 'at the expense of the many'), but I would love to see more people attempting to articulate solutions on *how* we can recalibrate said economic inequality, even if those solutions are not in themselves perfect.
The government does not have a great track record of building competition in the banking sector, in fact they actually sold multiple banks to the Australian banking sector going back to the 1980's
Straight from the treasuries website: https://www.treasury.govt.nz/information-and-services/financial-managem…
i.e. 1989 Post Office Bank - sold to Australia and New Zealand Banking Group (ANZ)
1989 Rural Bank - sold to Megneton Holdings Ltd
1992-1995 Housing Corp Mortgages - sold to TSB, Postbank/ mortgage corp, ANZ, Countrywide, Westpac
1992 - BNZ - sold to National Australia Bank
They had competition but ultimately sold out once it had decent market share, how will this time be different?
There's at least 3 of the big 4 banks in this list above... ANZ, Westpac and NAB
Complete and total failure by ComCom and successive governments to consider competition. (Need 6 or 7 entities with equal market share to have unconcentrated competition).
Also adding to the above by Uh Oh
1989 - ASB Bank sold 75% of shares to CBA Bank.
1998 - Westpac NZ became part of Westpac BC when the latter acquired Trust Bank forming WestpacTrust
1998 - Countrywide was sold to The National Bank.
2003 - ANZ bought The National Bank
https://en.wikipedia.org/wiki/History_of_the_banking_sector_in_New_Zeal… (some of the dates and info looks wrong?)
Yes. I struggle to take ComCom seriously given those decisions. Heard on the news tonight that 54% of customers have never changed bank. Maybe we could start by looking into a mirror. I have changed banks and very happy that I did. Also I do not have any money with the big 4.
Yes the country needs to decide if its all in to making Kiwibank competitive or get out. Personally I'm in favour of recapitalising it (by injection from the Super Fund) so that it can get big enough to begin to compete. At the moment it's so small it's not even able to be the government's banker - Aussie Westpac is the govt banker. A bit of a joke really.
The problem we have is that direct median house prices (the biggest consumer purchase) are not in the CPI.
Had they been so:
a) interest rates would never have gone as low as they did during Covid-19 blowing the insane land price bubble
b) higher interest rates in a) would have decreased the inflation burst we have had
c) current interest rates would not be as high as they are now with NZ being decimated by recession, people and families thrown onto the unemployment scrap heap & real gdp/capita falling.
While I am no fan of the RBNZ & the OCR approach which decimates people and families, the RBNZ couldnt have done anything about:
i) non-tradeable inflation - its the govts problem to fix (e.g. massive insurance increases (oligopoly again) & local govt funding/expenditure issues)
ii) the global supply chain constraints which drove some of the global CPI increase (multinational monopoly/oligopoly rentier profits drove much of the rest)
Like the RBNZ sometimes does with energy price spikes, it probably should have looked through the above effects and based its OCR calls on secondary impacts.
A mortgage adviser researches (or should at least) all the providers they deal with and makes a single recommendation on a provider based on the terms offered.
Putting one recommendation to a client makes sense. It's your advice to go with the provider based on it being the best deal for the client.
In addition, commission disclosure already a legal requirement. The client gets an overview advertised on the website of the broker, then again specifically in the disclosure doc for the broker then specifically for the provider in the Statement of Advice when the recommendation is made.
I'm not sure Andrew knows what's he's on about but he sure sounds great...
Potentially. So that's what the FMA looks for in their auditing- how did the broker get to the point they recommended lender xxx. It is BAU for the FMA.
If there's no reason to recommend a provider to a client aside from the commission, they'd let the adviser/FAP know about it and there'd be some form of reckoning.
Putting one recommendation to a client makes sense. It's your advice to go with the provider based on it being the best deal for the client.
Mortgage brokers should be showing their clients all of the offers they have, and then making a recommendation and explain *why* it is the best offer for the client's circumstances. That's how insurance brokers do it.
Insurance policies are vastly more complicated than mortgages.
It never ceases to amaze me how few people read the policy wordings but will tell you "they got a great deal".
I wonder how many people who read this comment actually know what they're insured for? And, what they think they are insured for, but actually aren't?
Can they also instruct Kiwibank and the sector to focus on competition.. Not being the wokeist.. https://wokeup.nz/.
Love this context and I hope this translates into a serious effort to stop the drain of money flowing away from the country
"in 2022 the recorded combined profits of the big four banks amounted to around 3% of our Gross Domestic Product. That is more than the electricity market, supermarket and construction sector combined"
And they would likely do it again. The only acquisition they have blocked in the last five years has been a provider of DJ equipment software (a whole other story, with ComCom spending $500k in costs to block it when it generated less than that in annual earnings in NZ).
Hmmm ...
How about getting market mechanisms in place so we can have 30 year fixed rate mortgages like they do in the USA?
That would mean the RBNZ could change the OCR without stuffing those owner occupiers with existing mortgages! (Rental property mortgages are usually on 'commercial rates' in most US states.)
(And in case someone comes at me with 'break fees' on a 30 year fix rate mortgage - The cost to break in the USA is calculated only on the interest differential lost in roughly 3 months - the estimated time the bank would take to re-use the money - so breaking and moving to lower rates isn't the big deal many think.)
It doesn't make a huge difference if the max rate to fix is 5years unlike the USA. While I appreciate that it gives people more time to spready the payments, in my mind it simply gives people more of an opportunity to mismanage their money living for now instead of planning for later.
The USA also has no recourse mortgage loans so ownersin financialstrife can hand the keys to the bank without the riskof personal bankruptcy. When the banks have their own skin in the game they will have more conservative lending policies & practices (= tend to depress house prices)
I agree. I grew up in the US and bought my first home in my 20s. I had a 30 year mortgage with a 3 year adjustable rate. While the interest rate could increase with the market in the first 3 years, the rate of increase was capped. After 3 years, the rate locked in for the remaining 27 years. This provides peace of mind. And Yes, if interest rates drop, the break fee was not significant. The US also offers 10 and 15 year mortgages. Higher payments, but you are paying off the principal much faster. When I upgraded to a new home, I took out a 15 year mortgage. Paid it off earlier.
Imaging my surprise when I took a mortgage here and found that a fixed rate, 30 year loan was not a thing.
All of that said, qualifying for a home loan in the US was also harder (at least back then). No more than 33% of household income could be applied to the mortgage, thus limiting the amount that could be borrowed. I had to verify the source of my down payment and prove that the source wasn't another loan that might be repayable. And lastly, if you put down less than 20% you had to purchase Private Mortgage Insurance (at an extra cost) so that if you did default on the loan, the insurance would cover those costs. The insurance could be dropped after 20% pay down on the mortgage was reached.
Lastly, what I have heard (and I have not fact checked this) is that the reason US banks can offer this type of true 30 year mortgage is that most banks on-sell their mortgages and therefore pass off the risk. There is some evidence of this in that every few years I would get a note from the bank indicated that my mortgage was being transferred to another entity. Rinse and repeat across the life of the mortgage.
Open banking initiatives in NZ have prioritised payments, which presents greater risk for consumers, lacking the protection afforded when making payments using Visa or Mastercard etc. It also doesn't extend beyond NZ borders, so does not replace the need to keep and use card payment details online. Similarly merchants will still need to offer card payments or forego swatches of potential customers.
What it does do is relieve the banks from worrying about underwriting those consumer protections and washing their hands of responsibility.
The upsides are all for the banks and finco's and precious little for merchants or consumers.
Perhaps this is the reason for the lack of up take?
So, where is the recommendation to strengthen competition law to stop the four big banks ever taking over any other banks in NZ ???
And, where is the recommendation to ban recourse mortgages and only allow non-recourse mortgages so that all banks can’t chase mortgagees forever to recover the mortgage debt??? This would substantially shift risk so that business and personal lending were more even and take away some of the excess profits being earned.
And where is the recommendation to ban mortgage application fees so that banks have to compete on the interest rate only???
And if we are going to have more competition and thus more risk, where is the recommendation to put in place the deposit guarantee scheme at the same time???
Mortgage Advisers aligned with banks? Disclosure about who is on the panel and what commissions are paid?
What rock has ComCom been hiding under? Advisers are not aligned with banks and full disclosure about the lender options and commissions has been mandatory for years.
Try harder next time ComCom, if you were in the private sector you would not exist.
Is it that our productivity as a nation is so poor that the RBNZ's sees its settings have to be conservative to try and prevent even greater widening of an inflation-driven gap between what we produce and what we expect to get paid to do it.
It certainly looks like incentivising productivity improvement isn't in their KPIs, so their only tool is bludgeoning interest rates.
Several things:
"I agree and I intend to issue a new Financial Policy Remit this year to make clear the Government’s expectation that the Reserve Bank, in its policies and actions, supports a more competitive banking sector," she says.
1. This is the government of sternly worded Letters of Expectation writing.
The response from Willis and Bayly says they support the market study finding that the Reserve Bank should review its settings for standardised risk weights taking into account impacts on competition, as well as the restrictions on the ability of some entities to market themselves as a bank.
2. Oh, what could possibly go wrong with making it easier for "entities" to represent themselves as a bank? Queue the CC investigation into fraudulent practices by "entities that market themselves as banks"
3. Maybe with open banking, the government will put its money where its mouth is and start migrating accounts to Kiwibank.
4. I haven't read the CC report yet, but I hope one of its recommendations is to require any bank making more than a $1B in profits must hire more phone support staff so that when I call I don't get the following message anymore: "Your call is important to us. Blah, blah blah high call volumes. Blah blah blah your current wait is 30 min.......".
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