WELLINGTON (Reuters) - New Zealand's four major banks provide limited competition for personal banking services due to price-matching strategies and a lack of disruptive forces to drive change, the country's competition watchdog said on Thursday.

A draft report released by the Commerce Commission said the four major banks' focus on maintaining profit margins had resulted in ongoing under-investment in their core technology platforms and low levels of innovation.

The report was commissioned by the previous New Zealand government in 2023 due to concerns about a lack of competition for personal banking services and questions over what could be done to improve the sector.

New Zealand's banking system is dominated by four large Australian-owned banks: Westpac Banking Corp ( WEBNF ), ASB Bank, Bank of New Zealand and Australia and New Zealand Banking Group.

The banks say they support the commission's intent to promote competition for the benefit of consumers and would look to provide feedback on the draft recommendations.

"It's important to consider the benefits as well as the potential downside to any change. The stability of the financial system and protection of customers' funds and information will be important considerations," added ASB Bank's chief executive Vittoria Shortt in a statement.

John Small, Chair of the Commerce Commission, said a well-functioning banking market would typically have strong competition driving innovation and choice for customers rather than the price-matching strategies seen in New Zealand, which has resulted in very stable market share for the banks.

The report recommended improving the capital position of government-owned Kiwibank, New Zealand's fifth-largest bank, ensuring the regulatory environment better supports competition and setting a 2026 deadline to have open banking fully operational.

Opening banking involves banks making customer data available to third parties on request, so customers can better shop around for deals.

Minister for Commerce and Consumer Affairs Andrew Bayly said in a statement he would await the release of the final report in August, but the government wanted to deliver better banking outcomes.

(Reporting by Lucy Craymer in Wellington; Editing by Nia Williams and Lincoln Feast.)