How can Kiwibank grow in a tough market? Buying a rival may be the only way
Tuesday, 7 January 2020
Kiwibank may need to acquire one of the country's big banks if it is to grow, commentators say.
There have been rumours that it is seeking to acquire a competitor, potentially BNZ.
The bank said it would not comment on market speculation.
Sam Stubbs, founder of KiwiSaver provider Simplicity, said it would be a logical move for Kiwibank because it would give it scale. The bank, which has been around for almost 20 years, has less than 5 per cent of the New Zealand market.
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It made a profit of $108 million in the year to June 30, compared to ANZ's $1.8 billion.
Stubbs said, with ACC and the NZ Super Fund as shareholders, it would have the ability to conduct such a deal.
NZ Super Fund put $263m into the bank in 2016 for a 25 per cent stake and ACC $231m for 22 per cent.
But Stubbs said it was less obvious that NAB would want to sell BNZ in New Zealand.
When the Reserve Bank first released its proposed new capital requirements, there was speculation that a big Australian bank, or more than one, might quit the market.
ANZ, ASB, BNZ and Westpac will need to increase the amount of 'tier one' capital they hold to 16 per cent of their risk-weighted assets, as the Reserve Bank had proposed during consultations.
But in a significant compromise, the Reserve Bank announced last month that banks would be able to raise up to about $9 billion of the total by issuing redeemable preference shares to investors.
That is rather than having to raise all the $20b through additional equity or by retaining more of their profits.
Stubbs said that made it less likely banks would pull out.
He said NAB was one of the 'more stressed' banks in Australia as it dealt with tighter margins and increasing compliance costs.
'Would they sell a crown jewel to fund themselves out of that? They could but it would be a strange transaction.'
There were other ways the bank could raise money without selling an asset, he said.
New Zealand banks tend to be more profitable than their Australian parents.
BNZ and Westpac were the only banksof a size that Kiwibank could attempt to purchase, he said.
Massey University banking expert Claire Matthews agreed it was possible.
'Purchasing one of the big four banks would be a relatively easy way for Kiwibank to grow and be able to operate as a full-service commercial bank, rather than the more limited retail bank that it currently is, and also be better positioned to be able to take over the government banking from Westpac.
'However, I would wonder where the funding would come from, because it would require a lot of capital. And I would expect to see changes to management and governance at Kiwibank, given the different scale and nature of operations at BNZ.'
Kiwibank has been closing outlets, including a Timaru branch at the end of November. The bank is separating its services from NZ Post.