20 Aug 2024

ComCom report: Willis adamant she wants 'action' on banking sector reforms

1:36 pm on 20 August 2024

Finance Minister Nicola Willis has welcomed the Commerce Commission's report and recommendations into the banking sector, saying it confirmed what Kiwis had long suspected: "We are not getting a good deal from the big banks."

Willis said the commission had conducted its work "fearlessly" and it's conclusions were robust.

"It has provided actionable insights and our government is responding with urgency."

She said the sector was dominated by four major players that made up 90 percent of the market.

"They are highly profitable compared with international peers, they lack innovation and they do not aggressively compete for customers."

No new banks had entered the market to challenge the status quo since Kiwibank was set up, Willis said.

She was joining the commission to call out market behaviour of the country's four big banks - ASB, ANZ, Westpac and BNZ.

Finance Minister Nicola Willis delivers the Budget Policy Statement.

Nicola Willis says the Commerce Commission has reached robust conclusions with its probe of the banking industry. Photo: RNZ / Samuel Rillstone

She also acknowledged the banking lobby was strong, but "democracy is stronger, and our government won't be cowered by the big four banks".

Commerce and Consumer Affairs Minister Andrew Bayly added that the government accepted the challenge laid out to it by the Commerce Commission and has wasted no time.

"We have already scrapped the overly prescriptive affordability regulations in the Credit Contracts and Consumer Finance Act, so Kiwis will benefit from easier and faster loan processing.

"We are implementing 'open banking' and are on track to meet the timeline the Commission has recommended."

He said open banking would make it easier for Kiwis to find services that met their needs and would make an environment for start-ups "to challenge the big established banks".

"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."

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Commerce and Consumer Affairs Minister Andrew Bayly says the government is not wasting any time with regards to banking changes. Photo: RNZ / Samuel Rillstone

Bayly said one of the key findings from Tuesday's report was that customers rarely switched providers.

They found it hard to compare offers and find the best deal, especially when it came to home loans and the application process.

It also found mortgage advisers were aligned with banks and often only put forward one home loan offer to clients.

Bayly said he would be encouraging the Financial Markets Authority to "pull every lever" they could to ensure mortgage advisers were transparent about who they acted for and what commission structures were in place.

Open banking would be a driving force for positive change, Bayly indicated, and once in place, he believed it would spark innovation and enable the development of new products and services, including better payment options, safer payment options, and better options for business.

Bayly intends to make it easier for people to switch banks, just as they would phone providers.

In Australia, the same banks that operate in New Zealand could switch an account in 10-15 minutes through open banking.

"We need to have that regime in New Zealand and that is one of the key benefits of open banking."

Part of Kiwibank's new look as the bank unveils a new logo and digital banking services.

Photo: Kiwibank

Kiwibank's future

On investing, Willis said the report made it clear Kiwibank would eventually need new capital if it was to grow and competitively seek out new customers.

"The time to act on that is now, and we are seeking advice."

She has asked Treasury to engage with Kiwibank's parent company Kiwi Group Capital on options for raising new capital, including from KiwiSaver funds, New Zealand investment funds and investment from everyday New Zealanders.

In terms of those options, Willis acknowledged she wanted it to remain "New Zealand's bank".

"I see the government retaining a majority interest well into the future."

Willis said she heard every week from Kiwis wanting to invest more in New Zealand.

She would love to create a pathway that would allow Kiwi mums and dads via their KiwiSaver accounts to beef up Kiwibank.

"That's exciting to me.

"If we removed that capital constraint and allowed KiwiBank to really go for the growth that's out there ... it would actually knock the big four banks out of their complacency."

Willis said she will take proposals to Cabinet no later than December this year, but acknowledged Kiwibank won't be able to focus on raising capital until 2026 at the earliest.

The Finance minister viewed today's report as a call to action, and will be issuing a new Financial Policy Remit this year to make clear the government's expectation that the Reserve Bank, in its policies and actions, supported a more competitive banking sector.

"The judgment this report essentially makes is we've got the balance too far in favour of financial stability, such that it's making it almost impossible for new entrants.

"One of the clear areas for action is the Reserve Bank's approach in using its tools to promote competition. So I expect action.

"I'm accountable to New Zealanders. If ultimately that means that we need to weigh changes to the Acts governing the Reserve Bank then of course we should consider that.

"Financial stability for New Zealand is critical, however, I agree with this report that we've let the balance go so far that in fact we're promoting financial stability at the cost of competition."

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