The Reserve Bank of New Zealand may be catching the reform bug, and has produced new analysis of the declining dominance of the four major Australian-owned banks in New Zealand, at least in business lending.
The NZ Commerce Commission’s recent final report of its Market Study into Personal Banking Services provides the context – and may explain the tone - to its submission to the NZ Parliament’s Finance and Expenditure Committee Inquiry into Banking Competition, published yesterday.
The RBNZ in its response to the draft report Market Study in April exhibited a reluctance to embrace many of the proposed reforms relevant to its mandate. The RBNZ now seems a little more flexible.
In this submission, t¬¬¬¬he RBNZ said that “in contrast to the stable residential mortgage lending market the agricultural and business lending markets have shown material shifts in market shares in recent years.
“Market shares are not necessarily indicative of the intensity of competition, but such changes are consistent with banks successfully pursuing different business strategies to their competitors.”
In both agricultural and business lending the dominance of the major Australian-owned banks has declined over time, with increased market shares for domestic and other overseas-owned banks:
? In the agricultural lending market, ANZ New Zealand’s market share has declined over the past six years, although it remains the largest lender.? Rabobank has steadily grown its market share from 16 to 22 per cent, becoming the second largest agricultural lender in June 2024.
Across all banks, lending to the dairy sector has declined as farmers in that sector have paid down debt, while the horticultural sector has seen strong lending growth, for instance in kiwifruit.
“Changing sectoral trends such as these are an opportunity for banks to compete for market share” the RBNZ said.
In the business lending market (including commercial property lending), domestic-owned and other overseas-owned (non-Australian) banks have grown their combined market share to 22 per cent.
“Other overseas-owned banks have been particularly active in lending to large corporates, and now command a 30 per cent market share for this segment.
“Other” domestic-owned banks have focussed on small and medium-sized business lending, growing from 4 to 9 per cent market share over the past six years.
The RBNZ pointed out that banks have proprietary approaches to measuring the profitability of different products and sectors.
“We recommend that the committee invite banks to explain their internal metrics of profitability across the different business lines and how these influence their strategies for agricultural and business lending.”
Then, in its most surprising commentary, the Reserve Bank of New Zealand argued for “more consideration [of] the possibility of unbundling the key roles of ‘transactional services’, ‘lending products’ and ‘investments’, which may be enabled by progress towards open banking.
“As noted in the Commerce Commission’s final report of its Market Study, high levels of customer inertia are a barrier to the competitive process, particularly in giving incumbent banks a low-cost source of funding through deposits.
“In some other countries much lending is securitised.
“It is also possible for providers of ‘securities accounts’ to offer limited transactional services linked