On your marks ... Hello, Kiwibank

By KEVIN TAYLOR

The tortuous progress of the people's bank dominated a year in which other banks lifted their customer service and delivered strong profits.

It was the year Kiwibank was approved, its capital was hatched and it got a name - three months after backer NZ Post said the name would definitely not be Kiwibank.

The irony of Jim Bolger's appointment as Kiwibank chairman was also widely appreciated - he presided over the sale of the state-owned BNZ.

Along the way there has been plenty of controversy over the Jim Anderton-inspired bank into which the Government has put $80 million.

In September, Treasury secretary Dr Alan Bollard accused Wellington consultant Peter Davies of downloading confidential reports and letters from a computer belonging to a department subsidiary, the Crown Company Monitoring Advisory Unit.

The information ended up with Act MP Rodney Hide, who embarrassed the Government by leaking potentially damaging details on the bank and internal wrangling at NZ Post.

Mr Davies denied leaking anything.

Mr Hide said he had never met Mr Davies and the Government had gunned for an innocent man.

But what was important was that the documents seriously questioned the venture's viability.

The premise that taxpayers should pay to start a new bank in an already competitive industry continues to be questioned.

National leader Bill English says his party would sell Kiwibank, although he also says nobody wants it.

He could be right. But that is yet to be shown - and Kiwibank clearly has an attraction to those disheartened by the foreign ownership of the country's big five banks, branch closures, rising fees and what they see as poor customer service.

To them, existing banks don't seem to care.

The new bank says more than 80,000 people have signed expressions of interest in Kiwibank.

It aims to have between 100,000 and 160,000 customers after its third year in business.

Its initial licence has been approved by the Reserve Bank and systems testing has started. Its managers say they will be ready to open the first of 300 branches in February.

Kiwibank will offer full personal banking services, from transaction accounts and credit cards to mortgages and term deposits.

It will have all the bells and whistles of modern technology including internet and phone banking.

And all this on a starting capital of about $80 million. Banking circles are wondering how Kiwibank can possibly work on that amount.

One of Mr Hide's leaked documents showed an external assessor of the project, Cameron & Co, believed at least $100 million was needed to give the bank adequate flexibility.

But Kiwibank starts with several advantages. It can use existing infrastructure - such as 300 post outlets and already-competent staff.

International ratings agency Standard & Poor's last month confirmed an "AA minus" long-term credit rating and said there was evident demand for the bank.

Success would depend on effective management of the risk and in getting suitable customers, the agency said.

But Kiwibank's future would be heavily influenced by the political landscape.

While there is little doubt it will attract customers, the question is how valuable they will be.

David Tripe, director of Massey University's Centre of Banking Studies, is sceptical.

Kiwibank needs the right sort of customers to be profitable, he says.

The bank will not make money on transactional accounts. It needs savings and loans business.

He says its survival may not even depend on performance - it may be up to the politicians.

"A change of Government could well spell the end of it."

But Mr Tripe thinks many of the customers Kiwibank wants won't shift because they are happy with their existing banks, which have lifted their game.

An annual Auckland University survey of banking satisfaction was released in November, showing banks had improved customer satisfaction ratings and support for Kiwibank had slumped.

Seventy-three per cent of residential customers said they would not consider switching to Kiwibank, compared with 41 per cent in last year's survey.

And only 31 per cent of New Zealanders now agree with the concept, while 54 per cent disagree.

Last year, 54 per cent agreed and 30 per cent disagreed.

But survey authors Mark Colgate and Bodo Lang say Kiwibank's impending arrival is still the reason other banks have redoubled efforts to improve customer service.

KPMG banking group partner Godfrey Boyce has no doubt that Kiwibank is responsible.

He thinks the new bank will be after ANZ and WestpacTrust customers, many of them former PostBank and TrustBank customers who came across to their new banks after the buyouts of each.

Former Postbank and TrustBank customers are the natural fit for Kiwibank, he says.

At the same time, he says there is no doubt ANZ and WestpacTrust have improved their customer service, which had been lagging behind the other main banks.

New Zealand's banks - the main five all foreign-owned - have also delivered to shareholders and parent companies in the past year.

They all delivered good news for shareholders with better profits than the previous year, and risk exposure and costs tightly controlled.

In January, National Bank reported an after-tax profit of $384 million, up 15 per cent on 1999's $333 million

ASB Bank was next to deliver its annual result.

In August, it reported a 22 per cent profit lift in the June year to $183.4 million, up from $150.1 million.

ANZ then delivered a 30 per cent profit rise from $266 million to $347 million in the September year.

WestpacTrust followed with a 14 per cent rise in profits in the September year, up from $408 million to $465 million. It was a record result.

Next was the BNZ, with a September year 13.1 per cent rise in profit, from $389 to $440 million.

TSB, the only New Zealand-owned bank until Kiwibank's arrival, continued to excel with a 30 per cent profit jump to $16.6 million in the March year.

Mr Boyce says the two banks growing fastest were National Bank and ASB

They also had the highest customer satisfaction rating.

He says the star performer in many ways was National Bank.

Its loan book has shown phenomenal growth - from $25 billion in September last year to $30 billion in September this year.

But he says all banks have performed this year.

KPMG has a special interest in the industry, counting among its clients ANZ, BNZ and Kiwibank.

Mr Boyce says the rural sector - particularly dairying - made up a good part of the driving force behind the banks' performance. Costs were also tightly controlled.

Retail deposits flowed to banks this year from nervous investors seeking more security - particularly in the past four or five months.

"The story of the last six months has been about the liability part of the balance sheet - but that's not to say there has still not been lending growth," he says.

Another help for New Zealand banks was the absence of large corporate collapses - unlike Australia, where several big tumbles affected banking.

Meanwhile, banking technology has continued its march with ANZ creating a new credit card containing a computer chip.

The so-called smart card, called Zed, is promoted by the bespectacled puppet Brains, from the old TV show Thunderbirds.

"Get Zed" Brains exhorts the public in advertisements.

"Get bank shares" may be the message for investors - and not just ANZ shares either.

But taxpayers are all shareholders in the latest entry into the industry.

nzherald.co.nz/kiwibank