Finance Minister Bill English has defended banks against accusations from one of his own back bench MPs that they are "gouging" customers with high overdraft rates, especially for farmers.

Appearing before Parliament's finance and expenditure committee, Mr English faced questions from National's MP for Wairarapa John Hayes about the effect of high interest rates on the local economy.

Mr Hayes said his own electorate would benefit from greater consumption or spending which would result in more jobs, but high interest rates - particularly for farmers - were hampering that.

"It seems to me in my electorate banks are gouging, particularly on their overdraft rates, charging about two per cent more than they need to."


But Mr English said the argument about what interest rates banks charged "is really a judgement about how competitive your banking system is".

"Do we think new Zealand's banking system is sufficiently competitive? Our view is: yeah it is."

Referring to Mr Hayes' recent trip to Europe, where governments continue to struggle with with bill incurred for bailing out financial institutions during the global financial crisis, Mr English said: "The one thing that's worse than profitable banks is unprofitable banks, so all these countries are finding out what happens when your banks fall over."

Three out of New Zealand's Australian-owned big four banks recently reported record results and between them generated net profits of $3.5 billion for the year, up from $3.2 billion on the previous year.