Government hopes to help find further $500m for Kiwibank

Monday, 9 December 2024

The Government hopes to encourage KiwiSaver funds and other local investors to inject an additional $500 million of capital into Kiwibank so it can become a bigger player in the banking market.

Finance Minister Nicola Willis said a range of measures would be needed to change the banking sector but it accepted the advice of the Commerce Commission that a larger Kiwibank would make a difference.

Her advice was that amount of capital would be sufficient to support up to $4 billion of business lending or up to $10b home-loan lending, “add competitive pressure to the market and potentially benefit customers of other banks”.

For context, total home and business lending by registered banks stood at a little under $490b at the end of October.

“The more capital Kiwibank has the more it can compete and the greater the likelihood of interest rates coming down for all bank customers,” Willis said.

Prime Minister Christopher Luxon said $500m would be enough to “disrupt the status quo”.

Willis said the Treasury had been directed to talk to KiwiSaver funds and local institutional and professional investors about the equity injection.

A public share offering might be an option to raise further funds in the longer-term, but Kiwibank wasn’t likely to be ready for that until it completed an overhaul of its IT systems in 2028, she said.

That meant no decision would be made on a share-market float during the term of the current government, she said.

Willis noted new investors in Kiwibank would probably want to know how they might be able to sell their shares if a public float didn’t eventuate.

“This exit option could take the form of investors having the option to sell their shares back to the Crown at an independently-assessed fair value.” she said.

Willis described the banks as having a “cosy pillow fight” and said the Government was putting the major banks on notice over competition and they should be aware “the time to act is now”.

“The Commerce Commission’s market study of the banking sector found that the sector was uncompetitive, and New Zealanders were not well-served by a highly profitable, two-tier oligopoly.”

Cabinet expected the major trading banks to work to deliver a fairer deal for bank users, including accelerating open banking, improving the payments New Zealand switching service and allowing greater comparison between home loans, she said.

“The big banks are on notice. The Government is explicitly leaving open the possibility of further action if we don’t see enough progress,” she said, without giving specifics.

Kent Duston from the Banking Reform Coalition said the Government’s plans were “no regrets actions a sensible government could take”.

But he said they felt like baby steps. “They are not bad in themselves, but we can go a lot further, a lot faster.”

To really get competition going in the banking sector, the Government should be looking at speeding up open banking competition to the banks, he said.

Duston said there had been several fintech companies announcing their plans to seek banking licences, including Dosh and Revolut, and the Government should be looking at what it could do to expedite their progress.

The big Australian-owned banks remained extraordinarily profitable, to the extent that they were “looting” the country, he said.

“Windfall taxes should still be on the table.”

In a separate move putting the heat on banks, the Government has updated the Reserve Bank’s mandate to put a stronger focus on competition.

Its new orders include ensuring prudential regulation and supervision of the banking sector does “not impede effective competition and facilitates the goal of improving competition, while remaining consistent with the financial stability objective”.