By Alex Tarrant
Banks are gouging rural customers by charging two percentage points more on overdrafts than they should be, National Party Wairarapa MP John Hayes has told Finance Minister Bill English.
English recommended customers should therefore shop around for lower rates, and said New Zealand's banking system was competitive enough to enable people to find better deals at other lenders.
With the Finance Minister appearing before Parliament's Finance and Expenditure Select Committee on Wednesday, Hayes told his deputy leader that he was concerned it was difficult to encourage more consumption in his electorate.
“It seems to me in my electorate that banks are gouging, particularly in their overdraft rates to a lot of our farming community," Hayes said.
“They’re charging about 2% more than they need to," he said.
“Is there something that might be done about this to encourage the banks to take their foot off people’s throats a bit?”
Hayes' comments were met with supportive cries of "good question" from the opposition members of the Committee.
English agreed that it was a good question.
“The first point I’d make is if you’ve just been to Europe, the one thing that’s worse than profitable banks is unprofitable banks. All these countries are finding out what happens when your banks fall over," he said.
“The second thing is that the argument about what interest rates are charged is really a judgement about how competitive your banking system is.
“Do we think New Zealand’s banking system is sufficiently competitive? Our view is, yeah it is. People have the opportunity to shop around, and in an environment where interest rate expectations have been dropping, there have been opportunities for people to get lower rates," English said.
Shop around
Talking to media in Parliament buildings after the Committee, English said the answer to the allegation of gouging was in the hands of bank customers themselves.
“There’re plenty of other banks in New Zealand beside the big four Australian banks. People can take their business there," English said.
“It’s really important we have a competitive market for banking, because in the long run that’s the main constraint on how they behave. We do have a reasonably strong banking system, and that’s served us well through some pretty tough times," he said.
“One thing that is worse than banks making too much money is if they don’t make money at all.”
“If they think their bank is doing too well, they should shop around for lower rates; banks who are willing to take a bit more risk. Take their business there," English said.
15 Comments
Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP. That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of “Wall Street greed” but because of the inexorable mathematics of our private banking system.
http://www.globalresearch.ca/its-the-interest-stupid-why-bankers-rule-t…
Well my own research has led me to the point of understanding that interest will always result in a transfer of wealth. Emphasis on the always. That makes it the number one issue that needs to be confronted as until that is resolved you can't fix anything else to any significant degree.
True, at the moment they willingly walk into the trap. Perhaps being informed of the matter would help, although my personal experience there is that people are locked into the status quo and don't want to know. Of course if good leadership banned it at the top.....oh wait what am I saying.
Here here!
its not rocket science create the public bank and retain the benefits. It's not as if banking is such a hard business to run look at the examples that are out there now. They are no Enstein's the number of stuff ups they do and still make a profit is testomy to that.
Zeebeck - we did have a major public bank (even has our country's name on it) but it went bust and had to be bought out by the Aussies for it to survive. We don't have the capital to create a major bank, indeed we didn't even have the capital or expertise to run most of our minnow finance companies - now there's an idea for you, Govt owned finance companies, a real money spinner for the taxpayer.
Grant A - if we can raise ~$43 billion in new taxpayer debt, we can capitalise the requisite minnow banks. Let's not get ahead of ourselves -our major banks and their Aussie parents operate in the realm of rounding errors in terms of world economic influence.
BNZ was a failure to implement strict regulator controls in my opinion - but we still persist with the laissez-faire regulatory/prudential dogma associated with the 'Chicago School' of economic thought.
The point the honourable gentleman misses is that there is around 25% of farmers that cannot shop around as they do not have a balance sheet and/or liquidity that a competitor would be comfortable taking on.
These are the customers that, as a rural manager in a past life, I had to offer rates that were 2% above the market for fixed (bill plus 400+ points) and OD rates that were anywhere between 2 and 4% above a stronger customer who could negotiate with us.
Of course the key thing that the Banks will then fall back on is that they have to hold more capital against the weaker businesses lending exposure so in order to acheive the same rate of return as a stronger customer, ergo, they charge a higher rate of interest.
No you wouldn't want to deny a bank its right to its return on equity would you???
"The point the honourable gentleman misses is that there is around 25% of farmers that cannot shop around as they do not have a balance sheet and/or liquidity that a competitor would be comfortable taking on."
Are you saying that ~25% of farmers are insolvent and unable to get out of debt?
"the one thing that’s worse than profitable banks is unprofitable banks. All these countries are finding out what happens when your banks fall over," he said."
I thought "these countries" are finding out what happens when politicians insist that citizens cover the cost of record bank profits and poor decisions when those banks fall over. What would happen if a bank fell over and all board members were executed guillotine style? or lynched... Might be the quickest cure for bad lending practice? More effective than regulation from "independant" reserve banks
I would say that nationally, 25% of the debt (not farmers) is in businesses that other banks would not be comfortable taking on the exposure as a new customer (new customer requirements are often more stringent than existing customer). It is an arbitrary figure but would definitely ring true at a sub $6/kgms payout.
The reality of this situation is that it will be some highly indebted farmers that have complained to the MP about the punitive interest rates their current bank is charging him and he has done the right thing by raising constituent concerns with the Minister as appropriate.
Interesting thought Midgetkiwi
" What would happen if a bank fell over and all board members were executed guillotine style? or lynched... Might be the quickest cure for bad lending practice?"
I guess to help answer this question we need to think about who helped create the situation.
Well the Banks of coarse! They went out and pushed money on farmers and business's even when these people weren't thinking of borrowing. Yes the borrowers didn't turn the money down but it was a two way street. You don't hear political leaders saying our farmers and business's need to be strong and profitable. When it is more important to the economy for business including farmers to be profitable than the Banks. If a Bank falls over Iceland has proved you just create another. So yes Midgetkiwi I support your call the "Guillotine" could be the cure.
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