Bank profits: Grant Robertson says select committee ill-equipped to conduct an inquiry

Finance Grant Robertson says any inquiry into bank profits needs to be thorough, but won't confirm whether the sector is next in line for a ComCom market study. Photo / Mark Mitchell

Finance Minister Grant Robertson is unenthused by National’s request for a parliamentary select committee to do a “short, sharp” inquiry into bank profits.

“I don’t think something as serious as this, which requires resourcing and powers to do a proper investigation, is the right thing for a select committee,” Robertson said.

Labour hasn’t officially decided whether to support National’s request for the Finance and Expenditure Committee to investigate banking regulation and competition.

But Robertson said this wasn’t the time for a “quick and dirty inquiry”.

“It’s one where if it is to go ahead, it would need to be undertaken in a way where it’s properly resourced and has the powers that it needs,” he said.

Asked whether he was suggesting he would prefer the Commerce Commission to investigate banks via a market study, as has been done into the fuel, supermarkets and building supplies sectors, Robertson said he wasn’t suggesting anything as a decision hadn’t yet been made.

National’s finance spokesperson Nicola Willis on Wednesday morning said a select committee inquiry could be narrow in scope and hear from a specific set of stakeholders, including bank chief executives.

She said a formal Commerce Commission market study would take time, be resource-intensive, and create a lucrative opportunity for lawyers and consultants, all the while being unlikely to give immediate answers to “urgent questions”.

“National believes New Zealand bank customers deserve answers to questions about the adequacy of competition in our retail banking sector, why increases in interest rate rises for deposits have lagged rate rises for lending, and the impact of new regulations imposed by the Government,” she said.

The New Zealand Banking Association’s chief executive Roger Beaumont responded to Willis’ call, saying in a statement: “Our banks operate in a competitive market.”

“The industry would welcome the opportunity to discuss bank profits and the contribution banks make to support the New Zealand economy, households and businesses,” Beaumont said.

“There’s also legislation in the pipeline to help people safely share their banking information with other service providers, which will support even more competition.”

The association sent that statement to journalists who requested comment, as well as the Government and the National Party.

The debate comes as bank profitability, measured by net interest margin, hit an eight-year high in the December quarter.

According to data collected by the Reserve Bank, banks’ net interest margin rose by 6 basis points, to 2.37 per cent, in the final three months of 2022.

The margin last reached this level in December 2014. The last time it was higher was in June 2006, when it hit 2.50 per cent.

The net interest margin is the ratio of net interest income to average interest-bearing assets. It is an indicator of how effectively a bank uses its funding to generate revenue.

Other measures of profitability were stable in the December quarter at pre-Covid levels. Banks’ return on equity was 12.9 per cent and return on assets 1.1 per cent.

Reserve Bank Governor Adrian Orr last month said he wanted to see banks lift their term deposit rates more, to help monetary policy transmit effectively.

He argued term deposit rates needed to rise to encourage people to save to help cool economic demand and dampen inflation.

The Reserve Bank, in its February Monetary Policy Statement, explained that “deposit rate increases continue to lag the increases in wholesale and mortgage rates, resulting in a further widening of bank margins between lending and deposit rates”.

It said it expected “deposit rates to increase over the coming year, incentivising savings, further dampening inflation and supporting the maintenance of current mortgage rates for a longer period.”

According to the latest available Reserve Bank data, the average interest rate banks paid on existing term deposits was 3.78 per cent in January - 2.72 percentage points more than when this average was at its low point in August 2021.

Meanwhile, the average mortgage rate (fixed and floating) banks received was 4.44 per cent in January - 1.61 percentage points more than when this average bottomed out in September 2021.

Those taking out new mortgages or term deposits now will of course face higher rates.

The average new standard one-year fixed mortgage rate sold in February was 6.91 per cent - 3.74 percentage points more than the low point in June 2021.

Meanwhile, the average new one-year deposit rate available in February was 5.35 per cent - 4.43 percentage points more than the trough in the cycle in February 2021.

Reserve Bank chief economist Paul Conway recently said a market study into banking competition could be warranted.

However, he said the Reserve Bank lacked the data required to definitively comment on whether companies were contributing towards inflation by price gouging.