The select committee inquiry will focus on the same topics of “competitiveness, customer services and profitability”, although NZFirst’s focus will be a full pricing and competition inquiry into foreign owned banks.

Before the election, National commerce spokesman Andrew Bayly, now the minister, said the banking study could be extended to include business banking – an area the party is particularly concerned about, saying a great deal of money has been moved out of the productive sector and into areas that are less so, particularly housing. Growth in business lending has been less than a third of residential mortgage lending.

Because of the coalition, Bayly now says the government has yet to decide whether it will halt the commission’s banking study in favour of MPs’ own inquiry.

Bayly says the government will take “a good look” at the commission’s draft report, due out in March, before making a call on whether to stop the commission’s work.

National wanted a “short, sharp” inquiry into competition in the banking sector instead of an extensive market study from the commission.

Its finance spokeswoman, Nicola Willis, now the minister, argued in March that a market study by the commission would take a long time, be resource-intensive and unlikely to give immediate answers to “urgent questions”.

Willis said the inquiry should be carried out by Parliament’s finance and expenditure select committee, as pressure mounted for politicians to take action about ever-rising bank profits.

The former Labour government told the commission to do a 14 month study into retail banking focusing on deposit accounts and home loans including the nature of competition among the 27 registered banks.

The four largest banks – ANZ, BNZ, ASB, and Westpac – hold 88% of total assets of registered banks in NZ.

One of the commission’s biggest areas of investigation is home loans and interest rates which have significant effects on household budgets. 

For 23% of households with home loans, repayments are significant. Overseas studies have identified home loans as being particularly profitable portfolios for banks.

About 86% of home loans are provided by the four biggest banks and about $348 billion in lending is on mortgages.

Too complex to understand

In a cross submission to the market study, Habilis NZ, a wellbeing and social investment consultancy, says there is prima facie evidence the Australian banks are making excessive profits for the undue enrichment of predominantly offshore investors.

However, it says rebutting the evidence from the main banks, which runs to about 150 pages, is beyond most bank customers because the documents are too complex.

“As is obvious the Australian banks’ submissions have been prepared by multi-person teams from some of New Zealand’s leading consultancies and law firms, working for some months.

“They are intended to promote and support the banks’ position, rather than to provide neutral commentary. They are advocacy documents, not research papers, and in our view are designed to be inaccurate and misleading.”

Habilis says while it is clear the specious arguments in the submissions from the Australian banks need to be refuted point-by-point, it is not at all clear the commission will be doing the work.

Instead, it appears the commission wishes to play the role of a neutral umpire, merely adjudicating the competition between the Australian banks and their detractors.

Advisers’ role

The commission is also studying the role mortgage advisers play in banking and their possible impact on competition.

A cross submission from financial technology platform AERA, the bank alternative for first home buyers, says mortgage completion rates are being used as a tool by banks to monitor the loyalty, effectiveness and servicing need for their adviser channel.

AERA says the tool is a bank’s measure of how many applications are settled versus the number of applications received.

“We are concerned this particular measure encourages mortgage advisers to only apply for a mortgage at one (or maybe two) banks which may be to the detriment of the customer.

“Anecdotally, mortgage advisers are actively encouraged to maintain a certain closure rate with a lender, and non-performance of this metric could place their lender facility at risk.”

AERA says it feels this is contrary to the customers’ view of a mortgage adviser’s ability to “shop around for the best deal” amongst all the market.

“It is also a metric that may result in multiple poor customer outcomes where mortgage advisers are actively discouraged from requesting competitive tenders for their customers,” the submission says.