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The mesh of challenges confronting the major banks in New Zealand – including the impending final report from the Commerce Commission’s market study and the upcoming select committee inquiry into banking – will continue to create growth opportunities through 2024 for the shadow banking sector.
This trend was evident last year but we expect it to continue to gain momentum over the next 12 months.
All five of the change drivers we identified in our April 2023 report – the structural reform project of the Reserve Bank of New Zealand (RBNZ); the disruptive influence of technology; the pressure on bank balance sheets; the increasing focus on social licence and the expansion of bank obligations – will continue to exert pull.
But we think the trends that will demand most in-house attention, time and resource this year are:
- A tougher business environment for traditional regulated entities, as deposit takers respond to more restrictive regulations in a market that is already under stress from elevated interest rates, and
- New opportunities and threats arising out of the technological innovation juggernaut.
Together, these factors will create an opportune environment for private credit, mortgage/loan financing, and other largely unregulated providers of financial services traditionally provided by banks (often referred to as ‘shadow banking’).
In our view:
- Opportunities for alternative providers will be created as the RBNZ tightens its grip on the regulated banking sector to maintain financial stability in an economy that continues to face headwinds. As the role of the traditional bank is redefined, the door will open to more private investment and new tech solutions. This is already occurring internationally, alongside a rising concern that regulatory responses may have lagged.
- New Zealand’s comparatively small lending transactions remain an issue for the creation of a large private credit market but, time and again, when conditions are favourable we have developed local and unique solutions to the size problem – e.g., our thriving public debt markets, effectively combining wholesale and retail demand into a single offer structure, and the development of consumer and SME-sized sustainable finance products across the industry (as we discussed in last year’s Investing for Impact publication).
- New Zealand’s nascent fintech sector may be about to enter a growth spurt as open banking becomes a reality and technological innovation moves up a gear.
This article is an excerpt from our 2024 report The banking industry: A look ahead.
