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NZ banks may become cautious lenders following scathing report on Australian counterparts

Australia's scathing bank report may lead to tighter lending by New Zealand institutions.

The Hayne Royal Commission has painted a picture of banks motivated by greed, unethical and possibly criminal behaviour, and recommended wholesale changes including the banning of commissions, and tighter regulation.

The head of banking at KPMG John Kensington said the Australian inquiry's recommendations were bound to have an effect on New Zealand's banking sector, which is dominated by the big-four Australian banks.

He said an unintended result may be that New Zealand banks get more cautious about their lending.

"When you've been told off for doing something that wasn't quite right, or your parent has been, you're going to be a bit more careful, a bit more cautious and you might see a little less lending, or what some people might call credit rationing," he told Morning Report.

Mr Kensington said with selling practices and customer advice under scrutiny, banks may take longer to approve loans and in some cases refuse to lend.

He said he also expected local banks to adopt their parents' systems to monitor selling behaviour.

Mr Kensington said a proposal by the Reserve Bank to force New Zealand banks to hold more cash reserves would also add pressure to lending decisions.

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Meanwhile, the Bankers Association said New Zealand banks at the moment are more focussed on reporting back to the RBNZ and the Financial Markets Authority by the end of March on how they intend to improve their own treatment of consumers.

The regulators last year inquired in to the local sector, and while it found no extreme or systemic misbehaviour as in Australia, they said the banks here must do better.

"The industry believes that trust is central to customer relationships and welcomes any moves to improve this. We will also work closely with the government on the recently announced fast-tracking of regulation for further customer protection in the financial sector," executive director, Roger Beaumont said.

"We also expect banks here will have a look at the Australian report for any relevant insights."

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New Zealand’s biggest players are keeping a close eye on the situation. Source: 1 NEWS