A Commerce Commission report says the big four banks face no serious competition from smaller rivals, and have become complacent as a result, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

Commerce Commission criticises NZ’s low-innovation, low-competition banking sector

In June 2023, the then Labour government asked the Commerce Commission to conduct a comprehensive review of the personal banking sector, to discover whether “the market is working well for New Zealanders”. Yesterday the commission released its interim report, and its answer to that key question is a resounding no. The report found that the big four – ASB, ANZ, BNZ and Westpac – have a stranglehold on personal banking, with around 90% of all banking assets residing in their coffers. They’ve gained this position thanks to the lack of disruption in the sector, the commission says. “In a well-functioning banking market, we’d expect to see strong competition driving innovation and choice for customers, rather than the price-matching strategies we see here in New Zealand, which result in very stable market shares.” The report adds that “we cannot rule out the possibility that tacit coordination may be occurring” between the major banks on services such as deposit accounts and home loans.

Why it’s so hard to topple the big four

The commission found that the biggest constraint on the ability of smaller banks to challenge the big four are the Reserve Bank’s capital requirements, which Interest’s Gareth Vaughan says are conservative by international standards. The capital rules haven’t allowed a level playing field for smaller NZ-owned players like Kiwibank, TSB, and the Co-operative Bank, Vaughan says. Another advantage for the majors is that they’ve cornered the transaction-account market, giving them access to retail deposits (which generally pay little or interest) as a plentiful and cheap form of funding. As for solutions, the commission says it’s vital that NZ picks up the pace on open banking and does more to help disruptive fintech services enter the market. Open banking refers to the ability of third parties to securely access banking data, a prerequisite for app-based challenger banks like the UK’s Monzo to operate here.

New Zealand entered a technical recession in late 2023

For many of us, one of the only times we think hard about our personal banking is when it’s time to refix the mortgage. For those people, the latest gross domestic product (GDP) figures are a useful data point that hint at the direction of interest rates in 2024. Yesterday’s Stats NZ release showed that the economy shrank by 0.1% in the December quarter. As that followed a 0.3% contraction in the September quarter, the country was in a technical recession during the second half of last year. While even a minor recession is bad news for the wider economy, it shows that the Reserve Bank’s (RBNZ) OCR lever-pulling has been working. So does that mean interest rate cuts are coming sooner than expected? Maybe, say bank economists. While some of them say the RBNZ may now act slightly quicker than before, large Australian fund manager Betashares is being much more bold, forecasting a full percentage point cut this year.

Grant Robertson’s take on using the OCR as an inflation-busting tool

The RBNZ’s use of the official cash rate to control inflation was one of the topics covered by the Herald’s Thomas Coughlan in his (paywalled) exit interview with former finance minister Grant Robertson, who departs parliament this week. Robertson was asked whether he agrees with former RBNZ governor Don Brash, who has long argued that raising interest rates is a blunt tool which tends to punish recent homebuyers while rewarding older, mortgage-free owners with money in the bank. Robertson thinks Brash has a point, and says many in the world of monetary policy (though “this is most definitely not about Adrian [Orr]”) could do with being more open-minded about new economic ideas. “I do think there is room to look and say, do we have the right tools?”