Their deep pockets allow them to tilt the playing field, inquiry told
In a submission to the Commerce Commission’s inquiry, Heartland Bank’s chief executive has alleged that big banks’ “deep pockets” allowed them to distort the market with mortgage broker incentives and home loan cashbacks.
In making the statement, Heartland Bank broke ranks from the united front presented by New Zealand banks against the Commerce Commission’s inquiry into their profits.
Those NZ banks claimed that it’s the big profits of the biggest banks that were insulating them from the fluctuations seen in American, Japanese, and Swiss banks, as they insisted that account number portability and sharing data planned by the government will make it easier for customers to switch lenders.
But just this week, Heartland Bank CEO Leanne Lazarus (pictured above) blasted the big banks and the “barriers to competition” they have allegedly established, when she revealed that smaller banks often can’t source funding from Reserve Bank and have to rely on the big banks’ credit lines, which, although only used occasionally, can be cut off at will, according to a Newsroom report.
“We don’t disclose who our wholesale funders are, but we work closely with them to negotiate the terms of funding when entering into or seeking a renewal or extension of funding,” Lazarus said.
She said smaller banks are reliant on big banks for funding, but that is also subject to the collateral and the quality of assets smaller banks have.
In Heartland’s submission to the bank profits inquiry, provided to Newsroom, the bank argued that big banks “have deep pockets” for distorting the market via mortgage broker incentives and home loan cashbacks.
It said it’s the larger banks that have the scale to cover the initial cash outlay that is required when paying broker fees. And the seemingly attractive “cashback deals” of up to 1% on the mortgage? Those come with strings attached. A big bank may require home loan borrowers, for instance, to keep their mortgage with the bank for three years, even though it’s fixed for just a year, it was stated.
“Cashbacks can also make it more difficult for customers to compare home loan offers between providers on a ‘like-for-like’ basis and the associated clawback period can also disincentivise customers to switch providers,” the Heartland submission said.
And while technical solutions such as number portability will help, customer inertia will continue to be a big factor that constrains competition, Newsroom reported.
“Many customers do not shop around for competitive rates or products,” Heartland said. “Heartland believes that inertia is, in part, because customers are unclear or uncertain about the bank switching process or it is too complicated or difficult for customers to do so.”
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