The Bank of New Zealand will drop penalty fees on overdrawn accounts as it, and its parent National Australia Bank, try to win new customers and improve their images.
From September 1, the BNZ will stop charging honour and dishonour fees on transaction and savings accounts.
The changes apply to both business and personal accounts.
Dishonour fees and honour fees are charged when there are insufficient funds available to make a payment or when an account is overdrawn without an overdraft facility in place.
BNZ charges a $35 dishonour fee and a $20 honour fee.
A bill payment that is unpaid due to insufficient funds incurs a $5 unpaid bill payment fee.
BNZ chief executive Andrew Thorburn said the penalty fees generated a large number of customer complaints every year and were a source of frustration for customers and staff.
"BNZ has made a decision to do something about that. We believe this is the right thing to do for our customers, clients and staff. It's also a strong business decision."
Banking was a competitive market and the BNZ was always looking for ways to improve its relationship with customers, he said.
In many cases, a customer's account was overdrawn due to some payments going out early or their salary going in a day late.
The bank would like to spend more time having constructive, useful conversations with its customers and less time discussing honour and dishonour fees.
The dropped fees would not be recouped elsewhere, Mr Thorburn stressed.
In Australia, the same gesture was estimated to cost NAB $A100 million ($NZ126 million) a year.
A bank memo seen by News Ltd said the bank's image had been tarnished by penalty fees.
