2 Sep 2009

Banks not passing on cuts to farmers, inquiry told

6:01 pm on 2 September 2009

New Zealand banks are not passing on full cuts in the Official Cash Rate to farmers, a parliamentary inquiry has been told.

Federated Farmers made the claim during an inquiry conducted by opposition parties Labour, the Greens and the Progressives at Parliament.

The Australian-owned banks and the Reserve Bank have boycotted the two-day inquiry which aims to to get to the bottom of whether or not banks are ripping off customers.

Parliament's finance and expenditure committee earlier decided that an inquiry was unnecessary.

Federated Farmers spokesman Philip York told the inquiry on Wednesday the future of the New Zealand economy depended on a profitable farming sector and, as such, it deserved access to cheap money.

Earlier in the day, KiwiBank chief executive Sam Knowles was asked by Labour MPs if he thought the Australian-owned banks were "ripping off" customers by not passing on cuts in the Official Cash Rate in full.

Mr Knowles said all banks faced roughly the same costs raising money to lend and believed the Australian-owned banks were interested in maximising profits from existing customers.

Mr Knowles said KiwiBank was less interested in chasing such large profits and more in building market share through offering more attractive rates.

KiwiBank had benefited from being able to raise more of its funds from cheaper local deposits.

However, Mr Knowles said the state-owned bank will find it harder to offer competitive mortgage rates in the future as banks compete more for local deposits.

The committee expects its report will be completed by late October. Its findings will be presented to the Treasury, the Reserve Bank and Finance Minister Bill English.