Parliament worried about banks restricting credit to businesses

Parliament's Finance and Expenditure Select Committee has warned it is concerned New Zealand's Australian-owned banks are restricting credit to businesses unnecessarily and agrees with Reserve Bank moves to pressure the banks to treat New Zealand customers the same as Australian customers. The comments came in the committee's annual financial review of the Reserve Bank of New Zealand published on Friday to little media fanfare. "The Reserve Bank Governor noted concerns that "as far as Australasian banks are concerned, New Zealand should always be considered a core market", and he would not wish to see a "home-country bias" to Australia," the committee said. "We are concerned that New Zealand businesses find it increasingly difficult to access credit from the major Australian-owned banks, where lending decisions are reportedly now being made by offshore bank parties rather than onshore relationship managers," the committee said.

"The Reserve Bank told us that there is widespread concern about this issue, and that it had discussions with the banks," it said. "We sought assurance from the governor that the Australasian banks treat New Zealand corporations and Australian corporations of similar financial strengths identically, and avoid any perception of New Zealand being treated as a marginal market," the committee said. "The governor told us that he could not give us such an assurance, and that the Reserve Bank was pressuring banks not to discriminate against New Zealand corporations unjustifiably. We agree with the governor, and urge the Australian-owned banks not to tighten the supply of credit to New Zealand corporations unnecessarily." The committee said it was also concerned that banks were not passing through the full extent of the Official Cash Rate cuts to their short-term lending interest rates. "While the Reserve Bank has cut the OCR by 5.25 percentage points, banks reduced the floating mortgage interest rate by only about 4 percentage points. We remain concerned at the impact upon the economy of not passing through interest rate reductions." The committee expressed concern about fees for breaking fixed mortgages, saying it wanted more transparency from the banks and looked forward to further Reserve Bank updates. Finally, it said it was concerned New Zealand's financial system was vulnerable because it was heavily dependent on funding from the international market, adding the Reserve Bank was designing a liquidity policy for banks. "The Reserve Bank's intention is that banks will be subject to some disclosure requirements and some quantitative restrictions on liquidity management, such as a specified amount of liquid assets, and a specified proportion of funds that are sourced from long-term wholesale funding. The Reserve Bank expects that the policy will be formulated in May 2009."