They call Australia the lucky country. When it comes to their home loan interest rates, that certainly seems accurate - at least compared to New Zealand.

ANZ Australia’s variable home loan interest rate is 2.90% lower than ours (5.09% p.a. VS 7.99% pa). The difference between our fixed rates is a little less and the gaps vary slightly between banks, but the theme remains.

The big Australian banks are charging their Kiwi customers far more than their Australian ones.

High margins, low competition

Sam Stubbs is the founder of Simplicity, a not-for-profit KiwiSaver provider and non-bank lender that offers an interest rate for first home buyers that’s similar to the Aussie banks, floating at 5.85% pa.

He says it’s pretty clear why we’re getting charged more:

“Competition is very low. Margins are very high. Unfortunately, we’re a small market here in New Zealand so it can be hard to get rich and deep competition.”

With that said, Stubbs adds that our situation here in New Zealand is unique.

“The four big Aussie banks are our four biggest companies. I don't think there's anywhere else in the world where four banks are consistently at the top. They’re making an average profit of almost $2,000 per person a year in New Zealand and their margins are 20% higher than they are in Australia.”

“These are four of the most profitable banks in the world and New Zealand is their most profitable area.”

In other words, the Australian banks are charging us more because they can - and we’re all getting ripped off.

What’s the solution?

In the 2021/22 financial year during a dire cost of living crisis in the aftermath of a global pandemic, the banking sector made a record $10 billion in profit. Is this something that we as New Zealanders should accept? Stubbs reckons it isn’t:

“This problem’s been evident for some time. It’s about whether politicians have the moxie to address it.”

“We’ve had Commerce Commission investigations into supermarkets and building materials and petrol. Banks are far more profitable and yet they haven’t been investigated.”

A Commerce Commission investigation would involve a deep dive into the sector, to figure out why they’re making such outsized profits, why competition is so low and what can be done to solve the problem:

“An obvious first step is open banking, or bank account portability. Essentially, this allows you to keep your account number and direct debits so that switching banks is very easy.”

“This lowers the barriers to entry for new banks and is increasingly the norm in the rest of the OECD. Banks have done lots of talking about how they’re ready but this is going to cut into their profits so let’s be honest ­­– turkeys don’t vote for Christmas.”

A mood for change

When governments make noise about investigating banks, they often play chicken and threaten to pull out of New Zealand. But why would they pull out of their most profitable market?

With cost of living coming to the forefront, politicians are under pressure to act. In fact, the Labour party have indicated that they’d like a Commerce Commission enquiry into bank profits, and the National Party has called for a select committee enquiry. Stubbs adds that the mood for change is here and he’s hopeful that things will get better:

“It’s going to get better. It worked for cellphones - look at 2 Degrees. It’ll work for supermarkets with Costco entering the market. We need to figure out how to make the same changes for banks.”

“Either way, there’s no question. These enormous profits are not good for customers. Regardless of the specific numbers, if banks are making this amount of money something needs to give.”