Customers getting a raw deal from competition-averse major banks

A Commerce Commission report says the big four banks face no serious competition from smaller rivals, and have become complacent as a result

Mōrena, and welcome to The Bulletin for Friday, March 22, written by Catherine McGregor.

In today’s edition: Luxon looking at establishing ‘delivery unit’ to manage performance targets; Hundreds more public service jobs to go; GCSB allowed a foreign agency to run a spy operation out of the bureau for seven years. But first, a lack of competition and innovation is allowing the personal banking sector to stagnate, ComCom says, and customers are losing out.

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 for third parties to securely access banking data, a prerequisite for app-based challenger banks like the UK’s Monzo to operate here.

New Zealand in a technical recession (as of 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?”

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Luxon looking at establishing ‘delivery unit’ to manage performance targets

PM Chris Luxon is considering implementing "deliverology", a strategy originating from Tony Blair's era as UK prime minister which is aimed at achieving performance targets in public service, The Post’s Thomas Manch reports (paywalled). Luxon’s office has explored options including establishing a Delivery Unit similar to Blair's, in part to manage over 100 public service targets that the PM is expected to announce in the near future. The Department of Prime Minister and Cabinet (DPMC) has engaged with London-based consultants from Delivery Associates, founded by the chief architect of Blair’s own delivery unit, to explore the feasibility of implementing something similar here. Discussions have revolved around adapting the model to New Zealand's political system and enhancing government performance tracking. The potential creation of such a unit aligns with Luxon's “corporate chief executive management style” of leadership, writes Manch. Despite inquiries, neither Luxon's office nor DPMC have confirmed specific plans.

Hundreds more public service jobs to go

It was a grim day for the public service, with major job cuts confirmed at the Ministry of Primary Industries (MPI), the Ministry of Health (MOH) and the Ministry of Business, Innovation and Employment. The announcements come on top of cuts already announced at agencies including Customs, DOC and Oranga Tamariki. MPI is expected to disestablish around 384 roles. Of those roles, 40% are currently vacant. MOH is proposing cutting 180 roles, while MBIE is eliminating nearly 200, Stuff reports. PM Chris Luxon said the situation was “really tough” and that he empathised with individuals and families affected. However he also reiterated that the previous government was to blame for over-hiring. "Too much bureaucracy was created [and] 16,000 more public servants were added to the public service," Luxon said. Meanwhile Act leader David Seymour has been called cruel by Labour for tweeting “Good” in response to the MPI job-cut news.

Should philanthropic giving be a moral obligation?

With the majority of Aotearoa struggling to meet basic needs, philanthropic funding is more important than ever. Cheryl Spain, executive director of The Gift Trust, joins When the Facts Change’s Bernard Hickey to explain why philanthropic giving needs to become part of New Zealand culture, where funding should be directed within an organisation for maximum effectiveness and how to navigate the complications that come with financial giving.

Click and Collect

• The GCSB allowed a foreign agency to run a spy operation out of the bureau for seven years without ever informing government ministers, a damning new report reveals.

• Sixty TVNZ staff earn above $200,000 a year, including nine earning over $400,000, and at least $6 million was paid out in performance and sales bonuses last year, a select committee has learned.

• The Police produced an eight-part internal podcast at a cost of $65,000. It received less than 500 unique listens.

• A major new study finds that 640,000 New Zealanders experience migraines, with nearly half of sufferers surveyed reaching the criteria for severe disability.

• A group of citizen researchers combing an area in the Mackenzie Country have found the meteorite that fell to Earth on March 13. It’s Aotearoa’s 10th recorded meteorite.

Feeling clever? Click here to play 1Q, Aotearoa’s newest, shortest daily quiz.

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