Boosting Kiwibank a no-brainer but finding right investors key – Editorial

The Government is considering ways to inject capital into Kiwibank. Photo / Marika Khabazi, RNZ

Editorial

EDITORIAL

The Government’s announcement that it will look to boost Kiwibank’s access to capital so it can be more competitive has long been mooted by those wanting to see it become a true challenger to the big four Australian-owned banks, but finding the right investors will be key.

Launched in 2002 by the then Labour-led Government as the brainchild of Jim Anderton, Kiwibank was handed $65 million to get started and had the support of being able to operate out of the NZ Post network of branches.

Its latest accounts reported yesterday show it has grown to have $32 billion in loans and $28.2b in deposits as of June. But that pales in comparison with the big four. ASB, which also reported financials recently, has a loan book worth $109b and deposits of $87.5b.

Kiwibank’s share of the mortgage market is around 10% but its market share of the business and rural lending market is even smaller.

Kiwibank is 100% owned by the Government but not that long ago it had other investors in ACC, the New Zealand Superannuation Fund and NZ Post.

While piggy-backing on NZ Post helped Kiwibank get started, it also proved a hurdle to getting capital. The shrinking postal industry meant NZ Post was cash-strapped and had no extra money to put towards growing Kiwibank.

NZ Post ended up selling 45% of Kiwibank to ACC and the New Zealand Superannuation Fund in 2016.

Then NZ Post wanted to further exit the business. ACC was lukewarm on investing more while the NZ Super Fund wanted to but its restrictions meant it could not own more than 50% of any New Zealand business.

In the end, the Government bought back the whole of Kiwibank for $2.1b in August 2022. Now Finance Minister Nicola Willis has said she’s open to diluting the Government’s 100% ownership of Kiwibank to enable the bank to access more capital.

She’s asked Treasury to engage with Kiwibank’s parent company, Kiwi Group Capital, on ways of doing so.

Willis has said she would consider welcoming capital from the likes of the NZ Super Fund, ACC, iwi, KiwiSaver providers and other investors. She was also open to partially floating the bank on the NZX.

She has said she wants Kiwibank to remain New Zealand’s bank. Potential investors the Herald spoke to said Kiwibank shares would need to be discounted if conditions were put on them, such as being unable to sell them to overseas investors.

Finding the right investors will be key – those with a long-term view who are prepared to put capital in and to be patient about getting an investment return. Investors who want a high return and are not prepared to reinvest in the business will not be the right fit.

Investors will need to be aligned with the need to increase competition in the banking sector not just lining their own pockets. Willis has said she will take a proposal to Cabinet by December. It will not be a quick fix for competition, but it’s a step in the right direction.

Another way the Government could support Kiwibank is to shift some or all of its banking services to it. At present the core Crown banking contract sits with Westpac New Zealand, which has held the contract since 1989. The contract was renewed last year and will be in place until June 30, 2027.