The pressure on the retail banks might only be just starting.
Finance Minister Nicola Willis yesterday announced that she was changing the Reserve Bank remit to make it more pro-active in encouraging competition within the retail bank sector.
And, Federated Farmers, who have been a major prod in the government’s side over retail banking are stepping up a campaign against the banks imposing greenhouse gas emission targets on rural clients through the Net Zero Banking Alliance programme.
A survey from the Feds published today shows that farmer satisfaction with their bank has dropped by nearly 30 per cent over the past seven years years.
What is surprising is that the big four Australian banks seem to have been convinced that ultimately a National Government would leave them alone.
But what has caught them out is an intense battle between National and ACT for the farmer vote which has seen the Prime Minister head a “Restoring Farmer Confidence” Tour in three centres over the past fortnight.
And Willis has come armed to the fight with the Commerce Commission market study n retail banking.
That found there was only occasional competition between the “big Four” Australian-owned banks which would require “external factors to destabilise the prevailing competitive dynamic between the major banks and bring out more intense price competition.”
So, Willis has sent a new letter of expectations to the Reserve Bank which is the way the Government directs the bank on policies other than the setting of interest rates.
The letter asks that the Bank implement a range of policy directives:
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- expanding access to the exchange settlement system with decisions by March 2025
- reviewing risk weighting for a range of bank lending
- reviewing minimum capital thresholds for new entrants into the banking sector
- reviewing restrictions on the use of the word “bank”
- dismantling barriers to lending for housing on Māori freehold land; and
- working with industry to make bank accounts more widely available.
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She has also asked Treasury to progress moves to provide Kiwibank with access to more capital.
“Kiwibank’s parent company – Kiwi Group Capital – and the Treasury have been directed to talk to New Zealand KiwiSaver funds, New Zealand investment institutions and New Zealand professional investor groups about a potential investment of up to $500 million in the bank,” she said.
She said that, in the long term, the most accessible source of additional capital for Kiwibank would likely be a public share offering.
“However, Kiwibank will not be ready for this until its current digital transformation is completed – expected by 2028 – so no decision on an initial public offering will be made in this term of government,” she said.
And she is offering to in effect underwrite any investment in Kiwibank.
She said the Government understood that institutional investors would require a clear option to sell shares before making any investment.
“If an Initial Public Offering (IPO) is not approved at a later date, there could be an option for investors to sell their shares back to the Crown at an independently assessed fair value,” she said.
But for the farmers who have been leading the charge against the Banks, to the extent that the current Finance and Expenditure Select Committee Inquiry into Banking also includes members from the Primary Production Committee, yesterday’s big news will be the request to the Reserve Bank to review “risk weighting.”
That relates to the limits banks place on farm loans by requiring higher deposits and sometimes higher interest rates because rural loans are considered more risky than urban house loans.
The Bank’s policy is predicated on an intention to protect New Zealand from a one-in-two-hundred years financial collapse.
In their submission to the Inquiry Federated Farmers said the Government should adjust the capital requirements for agricultural lending.
“(Reserve Bank Governor) Adrian Orr’s one-in-200-year financial shock standard significantly increases the cost of borrowing for everyone in New Zealand, but disproportionately farmers,” the submission said.
“We suggest reverting to a more balanced one-in-100-year standard, which would still ensure financial stability while reducing the burden on farmers and improving access to credit.”
They also said agricultural loans should have risk-weighted assets (RWAs) aligned more closely with residential mortgages, as rural lending was often backed by high-value assets like land.
“Currently, farm loans carry disproportionately high RWAs, leading to increased capital costs for banks and higher borrowing rates for farmers,” the submission said.
“By adjusting these risk weights, borrowing costs could be reduced, providing farmers with more equitable access to financial resources.”
Federated Farmers has released its latest six monthly survey of farmer opinion on banks today.
The survey says 84 per cent of farmers have bank loans and the average loan is $4.4 million.
But: “Only 53% of farmers report being satisfied or very satisfied with their bank, a drop from 80% in 2017,” the survey found.
“Rabobank leads with 70% satisfaction, while BNZ trails at 48%.
“On average, one in four farmers continues to feel undue pressure from their bank, with sharemilkers experiencing the highest levels.”
Adding to that pressure is a move by the four Australian-owned banks to sign up to an international Net Zero Banking Alliance programme which commits the banks to framing their lending policies in such a way they help reduce greenhouse gas emissions.
Westpac now requires that dairy farms reduce financed emissions by 10 percent by 2030 and sheep and beef farmers reduce by 9 percent.
Federated Farmers banking spokesperson Richard McIntyre says the Bank of New Zealand (BNZ) is demanding an 11% reduction in farming emissions by 2030 and “has exposed an outrageous Trans-Tasman double standard.”
“National Australia Bank, BNZ’s parent company, does not have the same emissions reduction target for their Australian farming customers; in fact, they don’t have a target at all,” he said.
The Federated Farmers survey found that 19% of farmers were now being asked about emissions profiles as part of loan requirements, with ASB (45%) and Westpac (42%) leading the trend.
Speaking at a recent session of the Select Committee Banking Inquiry, ACT MP Mark Cameron suggested to ASB CEO Vittoria Shortt that it was green washing.
Shortt claimed that the bank was supporting farmers by setting the targets because farmers themselves wanted to produce high-quality, sustainable products.
The Feds included comments from 609 farmers in their submission to the Select Committee; a large percentage attacked the emissions requirement.
Willis has not addressed this issue but it would seem unlikely that the Feds will let it go.
What is clear is that the Government is backing farmers and other critics of the banks.
The banks have always had a comfortable relationship with successive governments, particularly National Governments.
Former National Justice Minister Simon Power became head of the Westpac Private Bank after he left Parliament. Sir John Key chaired the ANZ Bank after he retired as Prime Minister.
However, the fact that a powerful and important National Party constituency, the farmers, are unhappy with the way the banks are serving them suggests that the banks may yet face more pressure from the Beehive.
