Editorial: Commerce Commission inquiry into banks overdue

Finance Minister Grant Robertson and Commerce and Consumer Affairs Minister Duncan Webb announce a Commerce Commission inquiry into bank profits.

EDITORIAL

At lunchtime yesterday, the worst-kept secret in New Zealand finance was confirmed.

The Government has directed the Commerce Commission to investigate the competitiveness of the banking sector, dominated by four big Australian-owned banks - the ANZ, the ASB, the BNZ and Westpac.

The timing is critical. Commerce and Consumer Affairs Minister Duncan Webb has asked for a preliminary issues paper by the end of August this year - ahead of the October election - before releasing full findings by August 22, 2024.

The problem for the Government is that, despite its increasingly louder tut-tutting, New Zealand’s retail banks made a record $7.18 billion in 2022 - a net profit after tax that was $1b higher than the year prior, according to KPMG’s Financial Institutions Performance Survey. There is no evidence of wrongdoing but it seems the banks couldn’t help themselves but keep on helping themselves.

The counter-argument to the eye-watering profits is whether we’d prefer banks losing money and collapsing. That hardly seems likely in our current environment or any regime the commission might recommend.

Illustration / Rod Emmerson

One apparent obstacle to the inquiry for the Government was frequent calls from others for it. The National Party, the Green Party, and the Reserve Bank too have publicly bayed for some form of inquiry into the retail banking sector.

In March, Labour MPs turned down National finance spokeswoman Nicola Willis’ proposal for an inquiry by Parliament’s finance and expenditure committee, claiming a Commerce Commission market study was likely.

At the time, Willis said access to credit had become harder, rising mortgage rates were hurting mortgage holders, and yet bank profitability was high.

This was all indubitably true, but to launch the inquiry at that time may have been painted as a Government bowing to pressure. Better to hold up the palm and make parties wait until their calls have eased before committing to the obvious.

And it has been patently necessary for some time. Last year, then Prime Minister Jacinda Ardern called on banks, amid a cost-of-living crisis, to assess their “social licence to operate”. “Are they demonstrating social licence and commitment to the communities by taking the profits that they are?” Ardern asked.

It has been more than four years since Australia heard the results of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Seventy-six recommendations came out of the scathing report that found widespread and scandalous behaviour, including charging fees for no service - sometimes to dead customers.

New Zealand responded with a Financial Markets Authority and Reserve Bank investigation into conduct and culture, leading to a number of measures to protect consumers. Few believed that would be enough as bank profits continued to increase.

Banks operating in New Zealand will no doubt ask why there is a need for an inquiry when, as the Banking Association’s chief executive Roger Beaumont puts it, “our banks operate in a competitive market”.

The real question is why it has taken so long.

There’s nothing like a looming, evenly-poised general election to bring focus to an issue.