(Oct 15): New Zealand’s government is keeping the pressure on the Reserve Bank of New Zealand (RBNZ) to use its regulatory powers to encourage more banking competition.

The new remit will make it clear that the RBNZ “needs to not only sustain competition but actually promote more competition and to effect that through its prudential and regulatory settings,” Willis told the INFINZ conference in Auckland.

“I’ve been consistent in saying [that] if changing the financial policy remit is not sufficient, then we would be prepared to make amendments to both the Deposit Takers Act and the Reserve Bank Act,” she said.

Willis is responding to a report that said the four largest lenders in New Zealand — all Australian-owned banks — are too dominant and profitable, and the lack of competition was hurting consumers. She wants the RBNZ to do more in its regulatory role, and is also assessing how to inject more capital into state-owned Kiwibank — the fifth biggest lender — to allow it to be a more effective rival.

She said the government is seeking a balance that allows for competition and new entrants, and that doesn’t overly advantage incumbents with significant market share.

Speaking later at the conference, RBNZ deputy governor Christian Hawkesby said the central bank has been making steps in that direction.

There is a growing appreciation internally that banking system resilience is only part of the picture and more needs to be done around competition, innovation, efficiency and inclusion, he said.

“There’ll be some things that we don’t have direct control over, but we can be part of that conversation,” Hawkesby said. “We can have the ability to draw the industry together, when there are other players who really need to take a lead in these areas as well.”

The RBNZ is looking at ways it can tailor regulations to smaller players, and is consulting on ways to make it easier for new entrants, for example by adopting lower minimum capital requirements to become a bank and by reviewing who is entitled to use the word ‘bank’.

While there are inevitably economies of scale that give large banks advantages, Hawkesby said the move to open banking will encourage those big players to compete more with each other. Open banking allows customers to share their financial data with other providers, making switching easier.

Hawkesby said the existing legislative structure the RBNZ works under has only recently been adopted, and needs time to bed in. He welcomed that Willis is initially using her powers under the remit to outline her expectations.

“It’s great that she’s not going straight to legislative change,” he said. “It gives us a chance to illustrate that we can take into account competition, efficiency and inclusion, and that it can be done under the legislative framework that we have at the moment.”

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