Opinion divided over whether the Government buying Kiwibank will be a win for taxpayers. Photo / Supplied
Opinion divided over whether the Government buying Kiwibank will be a win for taxpayers. Photo / Supplied
Finance Minister Grant Robertson is committing to bringing Kiwibank directly under New Zealand taxpayer ownership.
The Crown has agreed to buy the bank's parent company, Kiwi Group Holdings (KGH), from state-owned entities, NZ Post, the Accident Compensation Corporation (ACC), and the NZ Superannuation Fund.
NZ Post and ACC effectively don'twant to continue part owning KGH, as this doesn't align with their "long term strategic and investment plans", according to Robertson.
The Super Fund was interested in increasing its shareholding in KGH provided it had the flexibility to introduce private sector capacity and governance capabilities and could exit the investment in the future. However, this proposal didn't satisfy the Government, which wants Kiwibank to remain completely publicly owned.
So, provided the Reserve Bank approves the proposed $2.1 billion deal, Kiwibank will be owned by a new company, Kiwi Group Capital, that'll have a separate board to Kiwibank.
The arrangement is seen to be a win for the bank. But opinion is divided over whether it'll be a win for taxpayers.
Bruce McLachlan – a former chief executive of The Co-operative Bank, who now heads up Fisher Funds (which recently agreed to buy KGH's wealth management business) – believed 100 per cent government ownership would make Kiwibank more competitive.
He said any business with long-term plans to grow, compete and be sustainable, needs a stable and supportive shareholder.
However, former BNZ chairman Kerry McDonald was less charitable, saying "government ownership rarely leads to success".
Like the NZ Super Fund, he flagged Kiwibank's governance.
"I'd be looking at the quality of leadership at governance and management," he said.
"Without that, government ownership will make some superficial changes. These may satisfy the Reserve Bank, but it may not add the quality and competition they [Government] should be looking for."
Like other New Zealand-regulated banks, Kiwibank needs to increase the amount of capital it holds to satisfy tough Reserve Bank requirements that'll fully take effect by 2027.
Victoria University of Wellington associate professor and bank capital specialist Martien Lubberink said Kiwibank was behind its competitors when it came to bolstering the amount of capital it holds.
While other banks have in recent years been proportionately increasing the amount of capital they hold, Kiwibank's capital ratios have been deteriorating.
Lubberink maintained Kiwibank either had to take more risk to grow its profits or shrink the size of its balance sheet.
Robertson said the Government was prepared to provide Kiwibank with more capital, if required.
But Kiwibank's Steve Jurkovich stressed, "We've had a self-funding capital plan regardless of the change in ownership …
"I wouldn't, as a chief executive, ever want to put the bank in a position where we need to go and ask for capital. That's something within our control. We've had a capital plan that sees us meet rising regulatory requirements over time …
"Like any bank, if we can grow a bit faster and the returns are there – certainly we'd ask for capital. But we're not in a position where we are asking for capital."
Kiwibank chief executive Steve Jurkovich says the bank isn't asking for capital. Photo / Supplied
Lubberink didn't know whether the Government would end up needing to provide Kiwibank with more capital to satisfy the Reserve Bank.
"It mystifies me why states want to have banks," he said.
"We end up funding a very risky, probably non-viable institution. Not great, if you ask me."
Lubberink said there could be a rationale for state-ownership if Kiwibank offered something its competitors didn't. But it doesn't.
"There's hardly any demand for it," he said.
Furthermore, "It doesn't create a level playing field for the others that have to compete."
A former Westpac treasurer, Jim Reardon, had a different view.
He believed Kiwibank was successfully bringing competition to the mortgage market.
He said the proposed transition was a great strategy that would give Kiwibank the capital necessary to grow. He noted Kiwibank has expressed "clear ambition" to expand its small business banking book.
Reardon also supported the existence of a state-owned bank, saying he believed New Zealanders were uncomfortable about Australian-owned banks dominating the market.
Like Lubberink, he questioned whether Kiwibank would've been able to find investors outside of Government.
He stressed how stringent, compared to other countries, the bank capital requirements were. He also noted Kiwibank doesn't benefit from the economies of scale larger Australian-owned banks enjoy, so has a lower return on equity.
