Labour leaning towards Commerce Commission for bank profits inquiry

Labour seems certain to block a request from all other parties for a select committee investigation into bank profits, preferring a commerce commission inquiry.

While the government argues that would take the politics out of the debate, National and the Greens say that is not possible - and it will take too long for squeezed New Zealanders.

Commentators have been calling for the Commerce Commission to step in and investigate bank profits, with one campaigner finding banks were making $2000 a year per New Zealander in profit with mortgage margins four times higher than in the UK.

National on Wednesday called for a select committee inquiry, but Prime Minister Chris Hipkins told reporters the government was looking at the best way to tackle the problem.

"Clearly if we're going to do it, we're going to do it properly," he said. I don't think [select committee] is necessarily going to lead to the best outcome. A market study, it is one of the options we're considering ... I think that's probaly the best way forward."

He said banks had "certainly made some very handsome profits in the last little while", and questions should be asked.

"I think it would actually put some objective rather than some political commentary around that and it would give us a base on which to make good, evidence-based deicisons," he said.

But National Party leader Christopher Luxon told Morning Report that approach would take too long to help New Zealanders facing rising living costs now.

"New Zealanders deserve some answers frankly to what are quite urgent questions around some of the issues around competition - the barriers to entry, impact of regulation," he said.

Luxon suggested an inquiry at the Finance and Expenditure Select Committee would be better. National Party finance spokesperson Nicola Willis requested one in a letter on Wednesday morning.

"Let's do a short, sharp, quick study, let's get all the parties on board to do that through the finance and expenditure committee, and if there's a need for us to then go on to do a commerce commission study we can do it after that," he said.

A full commerce commission market study could be an outcome of the select committee, but it made sense to take a more narrow approach first, he said.

"So you bring the Reserve Bank in, you look at retail banks, you look at Treasury, you probably want the banking ombudsman, you want some international competition authorities and maybe a small number of other experts.

"Are there genuine competition issues; are there relay barriers to entry; why is it deposits are lagging lending rates; impact of any new regulation on banks that have unintended consequences or are causing challenges."

He said they would be seeking support from all other parties in the select committee.

Green Party's Chlöe Swarbrick said they would support it, but she had tried for two years to get the committee to look into the economic response to Covid-19, and did not think much of their chances with this one.

"Speaking freely and frankly about my experiences ... there is some really unfortunate partisanship that plays a role in blocking getting access to really basic information.

"I can understand some of the arguments against doing it in a select committee environment - that being that it boils down to a lot of partisanship and grandstanding and politicking and everything else - but there are some really valuable, important points about how much quicker a process like that could occur.

"You're never going to be able to take the politics out of this."

She said there was certainly a need for some kind of investigation - whether that be at the level of select committee, commerce commission or even higher like a royal commission.

"I think it is incredibly clear that what we are experiencing is a time when - not by virtue of the hard work, special work, or novel work that banks have put in - they have been recipients of fortuitous circumstances which have meant that they made excess profits," she said.

"Our banks have made $6 billion in profits last year alone. That is $180 a second after tax, and again in a context where so many New Zealanders are struggling that is absurd.

"We've heard the same from RBNZ, from the monopoly watchdogs that are out there and a range of other commentators on economic and financial matters and now you're even hearing from the National Party that they have some concerns."

In the meantime, there were things the government could be doing to make a difference now, she said.

"Don't need an inquiry to tell us what we already know which is there has been excessive windfall profits made at a time when so many have been struggling.

"If we were to, say, have a 10 percent excess profits tax on those excess profits we would raise in excess of half a billion dollars, which would go a really long way to addressing even the cyclone and flood recovery."

She said National's request had come to the committee too late to be dealt with this week under normal circumstances, although Brooking could decide otherwise.

"Everything's totally within the discretion of the chair ... what I'm guessing is gonna happen is it will be kicked to the agenda for next week and, politics will ensue."

It follows comments in November last year from then-Prime Minister Jacinda Ardern who warned about bank profits she said she did not think were justifiable.

Bank profits 'almost $2000 per New Zealander per year' - Stubbs

Simplicity KiwiSaver founder Sam Stubbs told the programme now would be a good time to carry out a study similar to the one done in Australia in 2018.

Stubbs said New Zealand's banking sector was unusual compared to comparable OECD countries.

"Our four biggest banks - all Australian owned - they're the most profitable companies in the country, they're the only companies that make more than a billion dollars a year each," he said.

"In the OECD, I think it's the only example that we have the four most profitable companies being banks, and to put that into another sort of context the biggest bank, the ANZ, makes more than the entire electricity sector put together."

He said the margins for banks in New Zealand were "huge" and had gone up about 23 percent in the last two years.

"Remember that's in the context of banks shutting branches and making it very, very difficult for some people to get banking services.

"If you look at what that all boils down to - which is basically return on shareholder funds - in the rest of the world you can expect about a 9 percent return from investing in a bank. In Australia it's about 11 percent, but in New Zealand last year was between 12 and 16 percent."

However, Luxon said the select committee inquiry would be different to what was done in Australia.

"[That was] really around a whole bunch of conduct issues which the feeling was in New Zealand - as I understood from Grant Robertson - was that was not really what we had observed here in New Zealand."

Stubbs said Kiwibank was the fifth-biggest bank, and that should be looked into because it was a state-owned bank that had aimed to provide competition.

"Since inception, Kiwibank has been a minnow. It's been a one armed boxer in the ring with four heavyweights that's created the illusion of competition."

Luxon said he had not thought about whether the government should consider allowing Kiwibank a partial listing on the sharemarket to give it more heft.

An open banking system was also needed, Stubbs said. Common across the OECD, this would allow much easier transfer of bank accounts or loans - which tends to increase competition.

He said it was estimated to lead to about $3 million a day in excess profits for the Australian banks.

"We have a new minister in now - here's an opportunity to actually bring in something that we should have had in this country years ago and by the way, which is in Australia, in America, in the UK.

"[Former commerce minister] Kris Faafoi was asking for this in 2020, the industry have been saying for the longest time 'leave it to us, we'll do it'. They patently don't want to do it because it's going to drop their profits, so every day they delay open banking ends up with millions of dollars more profit."

He said politicians tended to avoid targeting banks in New Zealand partly because banks would threaten to leave. New Zealand was also unusual in allowing politicians to take up senior banking roles very shortly after leaving office.

"We had a prime minister [John Key] who was the chairman of our largest banking largest company within 12 months. In the rest of the OECD, there's normally at least a three-year gap before you even pull yourself up for those roles.

"I think the banks playing chicken and the politicians blinking on this is one thing, the second thing is I think there are too many senior politicians and too many senior roles in the banks."