Finance Minister Nicola Willis says she hopes the Reserve Bank’s OCR cut will flow through to mortgage holders, telling banks they have a stake in the economy and they should 'pass on as much as possible'

After calling on the banks to publish the profits they earn from basic transaction, on-call and savings accounts - the Government is challenging them again.

Speaking to reporters in Auckland a day after the Official Cash Rate (OCR) was cut to 2.25% from 2.50%, Finance Minister Nicola Willis said: “My message to the New Zealand banks is a very clear one: pass on as much as possible.”

This was the last OCR review for 2025 - with the Reserve Bank (RBNZ) noting that any future moves would depend on how the outlook for medium-term inflation and the economy evolve.

RNZ reported that Willis said the RBNZ would be monitoring how banks responded to the OCR drop and she hoped it would flow through to people with mortgages via cuts to home loan rates.

Willis said when things were passed on “as much as possible”, that made a significant difference to the economy.

“And actually, as some of New Zealand’s biggest businesses, you have a stake in this economy. So pass those rates on.”

Banks have responded to the OCR cut, with the Co-operative Bank being the first to cut its floating rate from 5.30% to 4.99%. Westpac was one of the first big banks to make a move, cutting its choices floating, choices offset and choices everyday rates by 0.20%.

Other banks have also taken action, which you can read more about here.

There have also been cuts to savings account rates which you can read more about here.

'Capacity for competition'

When asked by journalists at Wednesday’s OCR media conference about fixed mortgage rates and what would happen to them, acting Governor Christian Hawkesby said the central bank was “not going to direct the banks on where to set their rates”.

Assistant Governor Karen Silk said banks are the ones that make the choice on this - not the RBNZ.

"They’ve certainly got plenty of firepower there to be able to lend more, there’s no credit supply issue here in the New Zealand market. So, each bank’s funding position will be one of the determinants as to what they do with interest rates from here."

When it came to bank margins, Silk said: "Where we see the, if you like, mark up on home loan rates today - it’s back to historic levels, the historic average levels that banks have had in that position. Now whether they can go further than that is ultimately their choice. That’s not something that we can direct.”

“But competition in a low credit growth environment, I would be expecting that competition for those home loans as they roll over and go on to new rates, that competition will be healthy in this market. There’s certainly the capacity for it."

Silk said there had been times where mortgage mark-ups were “well above their historic averages”.

"What we are saying is they are back to those levels now when you compare them relative to wholesale rates."

"I would suggest that the margins are healthy and there is room as I said, there is capacity for a competitive environment to bring them lower."

‘Yes, I think they do’

When asked by interest.co.nz on Thursday what would be reasonable margins for a bank to make, Silk said it was tricky to determine what is a reasonable margin and it depended on the conditions at the time.

“What we are saying is that margins are back to that historic average level. Where you see them fall below that level is because you’ve got good competition,” Silk said.

“The banks will argue that the historic margins are ones that provide them with an appropriate return on equity - lots of different things can drive what a return on equity looks like."

“Our view is that we do want to see competition in market so that we do see benefits flow through to consumers and businesses.”

New Zealand was in a low debt growth environment, Silk said.

“When you’re in that low credit growth environment, you would expect to see competition for customers and businesses through that period,” she said.

“Do banks have the ability today, with the margins they’re earning, to be competitive in terms of pricing? Yes, I think they do.”

Shop around

This isn’t the first time the Government has called out the banks.

On November 10, ANZ NZ released its full year results.

Its September-year net profit after tax jumped $441 million, or 21%, to $2.532 billion from $2.091 billion in its September 2024 year. The bank's previous record annual profit was $2.299 billion in 2022.

At a post-cabinet press conference on November 10, Prime Minister Christopher Luxon was asked if he felt more optimistic about the economy following ANZ NZ’s record annual profit.

In response, he said: “My only wish to the banks and message to the banks is pretty clear, which is I expect you to pass on OCR cuts incredibly quickly to the customers.”

Asked if banks were doing enough at the moment, Luxon said “I think banks can do a much quicker job and a better job.”

Luxon encouraged New Zealanders to shop around. “Because when I’m looking at some of the rates that you can see from some of the second-tier banks across New Zealand, there are some very, very good interest rates going.”

“If you can get a better deal, you should go for it,” he said.

‘Opportunity to prove it’

A few days after Luxon’s comments, the Government announced it had accepted or partially accepted all the recommendations made by the Finance and Expenditure Committee’s inquiry into banking competition.

The inquiry looked into the state of banking competition, and Commerce and Consumer Affairs Minister Scott Simpson said he would be writing to the banks, encouraging them standardise financial information and use digital technologies to help customers compare products and loan options across banks.

He would also be encouraging them to disclose profitability on transaction, on-call and savings accounts.

This was a recommendation of Parliament’s Finance and Expenditure Committee (FEC) following the banking inquiry. It wanted to know how much profit stemmed from everyday depositors effectively subsidising lending margins.

Banks broadly declined to share that information with the inquiry, saying it was commercially sensitive or otherwise not available for publication.

The FEC’s final report recommended the Government should ask the banks to disclose their profitability on transaction accounts, to improve transparency and competition.

It also called for the Financial Markets Authority to investigate transaction account pricing by using fair conduct principles, a framework used by the regulator to judge whether customers are being treated fairly.

While the Government lacks the legal power to compel banks to follow this instruction, Willis told reporters at the time banks would have to explain themselves to the public if they refused.

"We don't currently have a law that would allow us to force them, but I think the banks often make quite a point that they consider themselves to be good citizens of the country, well here's an opportunity to prove it," she said.