Grant’s Kōrero: Low Risk, High Profits – Best of both worlds for banks

The first half of 2024 is coming to an end, and not much has changed in terms of our high cost of living. Home ownership continues to be unattainable for many people, with the QV House Price Index for March showing the national average home value rose 2.2 percent over the first three months of 2024. I spoke about this in the media last year, and it remains true: banks need to do more to help New Zealanders on their path to home ownership. Back in March, the Commerce Commission released a draft report based on a market study of personal banking services, which includes looking at the market for home loans.

The key conclusion of the report is that there is a lack of strong competition in the New Zealand banking sector. This means there is little incentive to compete on interest rates, limited investment in technology and limited innovation.

When compared to banks internationally, the Commission considers that New Zealand banks are making relatively high profits, while taking relatively low risks.

What does this mean for whānau?

Our most recent papa kāinga housing development, Hawaiki, is being built for our Ngāti Whātua Ōrākei whānau to own, and to assist whānau into home ownership. We reached out to the four major banks in Aotearoa to help our whānau to borrow directly from the banks to build a whare on iwi owned land. Two banks declined to participate because the loans would be too different from standard mortgages and couldn’t fit into their standard systems – reflecting the lack of innovation and investment in technology that the Commission describes.

Eventually we enlisted the help of Westpac and BNZ for these home loans. We really appreciated the efforts they made, but even then, and despite Whai Rawa’s strong financial position, it took many months to get the plan into action. In a truly competitive market, it would not have taken so long, reinforcing the findings of the Commerce Commission’s report.

And how will this be addressed?

The Commission’s report notes that competition will only improve if several initiatives are pushed. For example, the Commission would like Kiwibank to have more capital and be a stronger competitor. It should also be easier for customers to change banks. The process to changing banks, particularly if you have a mortgage, is too hard. As a result, many stick to the bank they are already with, even if another bank is offering better rates or service. And technology should be utilized to make it easier for smaller, new players to compete with the big banks.

The report highlighted also that there are ‘barriers that are unique to Māori’ in accessing the banks services. One of these barriers is that it is very difficult for New Zealand banks to assist with whenua Maori being used for housing. The Commerce Commission is pushing for banks to make this easier.

Whilst Hawaiki is not on whenua Māori, the Commerce Commission’s report referenced Hawaiki as a great collaboration between banks and iwi to construct housing. But Whai Rawa is fortunate to be in a financial position that allowed us to implement a development like Hawaiki with the backing of two major banks. We are a bit unique in this respect, and other iwi or Māori land trusts across the motu might not be as lucky. Some of them could use our structure to put housing on their land, but many couldn’t. More needs to be done.

We’ve got a long way to go when it comes to banks being more accessible for New Zealanders and especially Māori to be able to own their own homes. We hope that the findings of this report are the start of progress.