Sam Knowles, former Kiwibank CEO. Photo / Mark Mitchell
Former Kiwibank chief executive Sam Knowles says the Government should consider a partial float of the bank on the New Zealand stock exchange as part of its review of its ownership structure in order to give it access to enough capital and allow it to better compete.
But a government spokeswoman says that is not being considered.
Last week the Herald revealed Deputy Prime Minister Grant Robertson had kicked off a review of the ownership of Kiwibank's parent company, Kiwi Group Holdings, which could see the bank directly owned by the Government.
Treasury has appointed Goldman Sachs to examine options for the ultimate ownership of Kiwi Group Holdings, which is also parent to wealth manager and Kiwisaver provider KiwiWealth, Kiwi Insurance and New Zealand Home Loans.
Companies Office records show the Sovereign currently owns 20.57 of Kiwi Group Holdings while NZ Post has 42.1 per cent, the New Zealand Superannuation Fund has 19.85 per cent and ACC 17.48 per cent.
Launched in 2002, Kiwibank was initially owned by NZ Post. In 2016, stakes were sold to the Super Fund (25 per cent) and ACC (22 per cent) in a deal worth $494m.
For the first five years the owners were only able to sell shares to each other, however the restrictions ended at the end of October (2021) and the review is believed to have been triggered by at least one of Kiwi Group's shareholders expressing a desire to sell.
Speaking to the Herald as the bank celebrates its 20th birthday this month, Knowles said there was still a lot more opportunity for Kiwibank to grow and for New Zealand banking to become more competitive.
"What has constrained Kiwibank is shareholder appetite - that's a call for the Government because banks do need a lot of capital to grow quickly and, obviously, having a major shareholder who has got a very mature business that is under quite a lot of stress is not the way you grow a bank quickly."
New Zealand Post has faced increasing pressure on its bottom line with the decline in mail use although it has benefited from the rise in courier deliveries bolstered by the pandemic as more people have shopped online.
A note released from Standard & Poor's this week stated that NZ Post's investment in Kiwibank provided a material source of financial flexibility to the group.
"In this regard, we believe that a sell-down of the group's stake in Kiwibank could alleviate any future pressure on the group's credit quality."
It also noted that its rating on NZ Post assumed the company would not be required to provide capital support to Kiwibank (unless funded by the government owner).
Knowles said what Kiwibank really needed was good access to capital particularly with the increase in capital ratios that was being required of all banks by the Reserve Bank over the next few years.
"That just highlights the challenge behind the review. It is a challenge for the Government to think about. There is quite a good SOE [state-owned enterprise] model that is working today for Air New Zealand and the power companies and that is a proven model and one that would probably make sense."
The four major power companies were partially floated under the National Government with the Government retaining 51 per cent control.
"The Government can make the calls and say we will do that job or it can say it would be better off handing it off to local investors.
"I think it is a model worth evaluating which I am sure will be evaluated. It seems to have worked in those sectors - the other question I guess is the one they have done in the mobile and electricity sector; do they try and do something about making it easier to move banks. In the end it's where does it sit on the priority list for difficult regulatory challenges? Is it supermarkets or banks - you can't do everything."
Sam Stubbs, chief executive of KiwiSaver provider Simplicity, said Kiwibank was in a very unfortunate situation where it was a well-run business but its business model meant it was undercapitalised.
"Every New Zealander would think that bank profits are being held in check by the presence of Kiwibank. That is completely wrong. In fact the Aussie banks are allowed to run rampant because they can say we have got Kiwibank, it's a competitor. But it is just not true. They have never been viable competition because they haven't had enough money."
Stubbs said the Government should use the national balance sheet to substantially recapitalise the bank.
"I'd be using the national balance sheet because that is the only thing that can beat up the Aussie banks."
Stubbs said if the Government did consider floating it on the NZX a majority shareholding would be attractive to KiwiSaver providers like itself.
"We would be in boots and all as long as the new capital structure allowed it to grow and raise capital - absolutely because then if you have a look at banking it is a pretty profitable industry, you could shrink margins and still make reasonable money.
"If it was a majority stake being listed it would be highly attractive - I don't think the Government has got anything to lose."
He said if there were concerns about foreign ownership the shares could be made so they were only available to approved domestic purchasers.
"Whatever the outcome - you have got to have an outcome that either has Kiwibank getting to be a big competitor or getting out of the market and the Government properly recognising what is the reality here which is you have super profits being made by banks in a very lightly regulated environment. So either they have to get Kiwibank big enough to compete or get it out of the market and regulate fees."
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