The Banking Reform Coalition is calling on the Financial Markets Authority (FMA) to take swift action against banks that are failing to pass on Official Cash Rate (OCR) cuts to mortgage rates in a timely manner. This new push follows the introduction of the Conduct of Financial Institutions (CoFI) regime, which gives the FMA more power to hold banks accountable for their conduct.
With banks facing increasing scrutiny over delayed OCR reductions, the Banking Reform Coalition is growing impatient with the excuses being offered by financial institutions. According to Kent Duston, head of the coalition, these delays are unjustified and fail to explain why New Zealand banks continue to lag behind international counterparts when it comes to passing on rate cuts quickly.
CoFI Regime Empowers FMA to Investigate Banks’ Practices
The FMA’s enhanced role under the CoFI regime, which came into effect on March 31st, allows it to investigate claims of unfair treatment by banks and other financial institutions. As a result, the regulator has been charged with ensuring banks meet reasonable standards in their business practices, including in how quickly they respond to changes in the OCR.
In a recent inquiry, the FMA informed the Finance and Expenditure Select Committee that investigating delayed OCR cuts was one of its top priorities. Under the new rules, the FMA has the ability to take action against banks that are not acting fairly or in the best interest of their customers.
For many mortgage holders, the delay in OCR cuts being reflected in their rates has led to significant frustration. Some banks are taking as long as two weeks to pass on the rate reductions, citing outdated IT systems and the time required to notify customers as the main reasons for the delays.
The “Excuses” Behind Delays: Outdated Technology and Customer Notification
While the Banking Reform Coalition acknowledges that some of the core banking systems are indeed outdated, it argues that these reasons should not be accepted as valid excuses for the delays. During a market study last year, the Commerce Commission found that ANZ’s core systems were so old they had been depreciated to zero value. This raised concerns over whether these antiquated systems were preventing banks from acting efficiently.
Duston, however, remains skeptical of these claims. He points out that banks, especially the big four, are among the most profitable financial institutions globally. ANZ, for example, posted a return on equity of 14.1% for the December quarter—nearly triple the OECD benchmark of 5.5%. This level of profitability, Duston argues, should provide ample resources for banks to update their outdated systems and provide better service to customers.
Big Banks Raking in Profits, But Customers Pay the Price
The discrepancy between the banks’ profitability and the service they provide to their customers has been a point of contention. Duston argues that if banks like ANZ are so profitable, they should be reinvesting some of that profit into upgrading their systems rather than prioritizing dividend payouts for shareholders.
“There is no reason New Zealand borrowers should be punished because it has creaky old systems and prioritised paying dividends to its shareholders rather than reinvesting in its core IT systems,” Duston says. This frustration is shared by many consumers who feel the banks are using outdated technology as a shield to delay benefiting customers from OCR reductions.
The “Notice Period” Dilemma: Another Weak Excuse?
Another excuse frequently cited by banks is the need to give notice to borrowers before changing their mortgage rates. However, the Banking Reform Coalition dismisses this as yet another weak reason for the delays.
While it is true that banks are required to inform customers of rate changes, Duston argues that this process could be streamlined, especially given the advanced communication channels available today. “Banks should not be using this notice period as an excuse to delay passing on rate cuts,” he asserts.
FMA’s Role in Ensuring Fairness for Borrowers
As the FMA steps into its new role as a bank conduct watchdog under the CoFI regime, it faces the task of ensuring that banks comply with the fair treatment standards outlined in the new rules. This includes investigating claims that banks are unjustifiably delaying OCR reductions, a move that would help ensure customers are not unfairly burdened by slow rate adjustments.
In the coming months, it will be crucial for the FMA to take a proactive stance in holding banks accountable. The Banking Reform Coalition and many mortgage holders will be watching closely to see how effectively the FMA uses its new powers to address these ongoing concerns.
