The country's biggest banks welcomed the study. Photo: RNZ
Banks say the sector is already competitive as the industry faces a government-ordered probe.
The government has asked the Commerce Commission for a market study on the sector, which would look into competition for personal banking services, but would not look at conduct and culture.
It would look at competition across a wide range of consumer banking, such as personal loans, mortgages and credit cards. In addition it would also assess barriers to new market entrants and how easily consumers can switch banks.
The New Zealand Banking Association said banks would engage with the market study, but chief executive Roger Beaumont did not think it was necessary in the first place.
"We've got nothing to hide. It's a highly regulated industry and we're used to being very transparent and open because of that degree of regulation," he said.
In his announcement earlier, Finance Minister Grant Robertson said there had been long-standing issues about banks that needed addressing, and highlighted bank profits in New Zealand.
Finance Minister Grant Robertson. Photo: RNZ / Samuel Rillstone
New Zealand banks performed better than their international peers, he said.
But Beaumont said it was not fair to compare different regulatory environments.
"The regulatory requirements vary from market to market.
"If you look at our nearest neighbour Australia and compare the return on equity, which is a way of trying to give some context to profitability, banks here - their return on equity - isn't that different to banks in Australia."
The country's five biggest banks, ASB, ANZ, BNZ, Kiwibank and Westpac, all issued similar statements welcoming the study.
The only bank prepared to speak directly with RNZ was ANZ, which said a competition study was a good opportunity to assess the facts.
Chief executive Antonia Watson said New Zealand's banking sector was already competitive.
"We've got banks of all sizes, we've got different ownership structures and we've got a government-owned bank," she said.
"But I can understand that as cost-of-living pressures have impacted all of us, it's understandable that reviews like this are taking place across various industries."
On the dominance of the big four Australian-owned banks (ASB, ANZ, BNZ and Westpac), Watson said they did face competition.
"As one of the big four we would say we've got plenty of competition out there," she said.
"It's also interesting looking around the world. Economies that are much bigger than New Zealand are also dominated by four or five banks - France, Canada, Australia [as examples] - so it's definitely not an uncommon structure," Watson said.
Business banking left out
Independent economist Cameron Bagrie said the market study had the potential to make a difference. It was the banking sector's turn after similar studies into building, fuel and grocery sectors, he said.
But Bagrie was "baffled" as to why the government was only focusing on personal banking.
"Now that's where we see quite a lot of competitive price pressure. It's transparent, it's pretty easy to swap banks.
"To me, if you're going to be serious about looking at the banking industry, you'd want the business sector within the terms of reference."
Business banking was a problem area, Bagrie said.
"We don't have the same degree of transparency over pricing, and to be fair business loans are a lot more complex than housing loans.
"But in the business sector it has been notable for the past few years how much more difficult it has been for the business sector to obtain credit."
The Commerce Commission is set to release the initial issues paper in August, with the market study completed about the same time next year.