Two banks facing court action by the Commerce Commission say they will continue co-operating with an investigation into sales of interest rate swap contracts to rural customers.
The commission began an inquiry after complaints from farmers who said swap contracts they bought to protect them from interest rate rises had ended up costing them heavily instead, when the rates did the opposite and fell.
The commission has told the ANZ, ASB and Westpac banks that it considers they may have breached the Fair Trade Act by misrepresenting the swaps to rural customers, and that it will file court proceedings against them next year.
ANZ Bank, the country's biggest rural lender, said the issue related to some rural interest rate swaps sold mostly to large farming enterprises before the global financial crisis, when interest rates suddenly dropped.
Both it and Westpac said they would continue to co-operate with the commission but Westpac says it would also vigorously defend any legal proceedings brought against it.
The commission said it was also considering the conduct of other institutions which had sold interest rate swaps.
Labour MP Damien O'Connor said the commission's move was an important step in finding out what effect the interest rate swap contracts had had on rural New Zealand.
"I certainly have spoken to many farmers who believe they were mis-sold these products. It has caused a lot of financial pressure across the rural sector and while there has been attempts to deny the impact, now the Commerce Commission has made a ruling, it will proceed to the court and, in my view, there will be significant outcomes from that," Mr O'Connor said.
"The question is whether the customer, whether the farmer, knew all the risks involved when they purchased these products."
Green MP Steffan Browning said the issue showed the need for New Zealand owned and controlled rural banking, as there was when the Rural Bank operated.
About 95% of New Zealand banking was with foreign-owned banks, which had little reason to consider the effects of profit-gouging on kiwi farming families and communities, Mr Browning said.
"Government could help here. Government could support capacity-building of Kiwibank to become a significant rural lender, and it could also support New Zealand co-operatives to become rural lenders in their own sectors and communities," he said.