Commission justifies National clearance

By PAULA OLIVER

Small businesses will be hardest hit if ANZ buys the National Bank, but the Commerce Commission has taken the view that they will be able to switch to competing banks if they want to escape a fall in the quality of service.

The commission also hints that a new entrant will begin offering business banking services within the next two years.

ANZ was granted clearance by the commission to buy the Lloyds TSB-owned National Bank just under two weeks ago.

In a newly released 80-page full report, the commission has explained how it arrived at the decision - one which has been criticised by some banking observers.

The report reveals that small-business banking and basic transactional accounts would be most affected by the proposed acquisition.

In both areas the combined market share of the merged entity breaks the commission's safe harbour guidelines.

In small-business banking, the commission acknowledges that customers have complex needs which could make it difficult for them to switch banks.

Some have been given specialist software packages by their banks to help manage their needs.

The small-business sector is dominated by the five big banks, but in a section that has been deleted from the public version of the report the commission discusses the potential arrival of an unidentified new player.

Information has been withheld because it is sensitive, but it is likely the new entrant is state-owned Kiwibank, which has indicated an interest in the sector in the past.

The commission states that the merger would be likely to result in a reduction of choice and quality of service for small-business customers.

"This is because National ranks highly in terms of customer satisfaction," the report says. "Further, there are switching costs in changing banks. However, there are three other banks that SME customers could switch to, all of which would continue to compete on quality of service."

There could be a window of opportunity for competitors to snare customers because attrition is expected if the merger goes ahead, the commission says.

Estimates of across-the-board attrition from an ANZ buyout have been as high as 15 per cent.

ASB is pointed to several times in the report as being particularly aggressive in increasing market share in small-business banking, rural banking, and transactional banking.

It is held up as a viable alternative for customers wanting to switch because it is often near the top of satisfaction surveys, and because it has recently been offering good deals to transfer banking.

Rabobank is given similar credence by the commission in the rural-banking sector.

The mortgage market is described as having sufficient competition to counter any abuse of market power by the merged entity, and Kiwibank, TSB and PSIS are seen as alternatives for transaction-based customers.

Massey University senior banking lecturer David Tripe said yesterday that he found the commission's report on the planned buyout disappointing.

"It doesn't appear to understand the full cost of switching.

"Small-business people need to establish a relationship based on communication - that's how you get access to borrowing for your business, when people understand it.

"It's not just financial costs."