This initiative will enable the New Zealand-owned bank to compete more vigorously against the four Australian-owned banks.
The New Zealand government plans to pursue a capital investment of up to NZ$500 million ($290 million) for its state-owned bank, Kiwibank, to improve the competition within the banking sector, dominated by four Australian banks: ANZ, ASB, BNZ, and Westpac.
Finance Minister Nicola Willis announced at a post-cabinet news conference on Monday in Wellington that Kiwibank’s parent company, Kiwi Group Capital, and the Treasury Department will discuss the investment with local investors, including KiwiSaver pension funds. A final decision is expected by mid-2025.
She stated that this initiative will enable the New Zealand-owned bank to compete more vigorously against the four Australian-owned banks.
She continued saying that New Zealand often felt undershadowed by Australia. They are working to strengthen their position to create a more equitable outcome for Kiwis.
Willis has criticized the Australian banks for creating an oligopoly in New Zealand, stating that their competition resembles more of a cozy pillow fight. In a report published earlier this year, the Antitrust Commerce Commission recommended that Kiwibank receive more capital to challenge the larger banks.
Willis mentioned today that an extra NZ$500 million of capital for Kiwibank would support up to NZ$4 billion in business loans or NZ$10 billion in home loans, which could add competitive pressure in the market and potentially benefit customers of Kiwibank and other banks.
According to Willis, the more capital Kiwibank has, it will increase its ability to compete in the banking sector and lower the chances of interest rates coming down for all its customers.
Willis said that this investment was not an asset sale, which Prime Minister Christopher Luxon committed not to do during his time in opposition.
Currently, the four biggest lenders collectively hold 90% of the deposits. The Australia and New Zealand Banking Group Ltd. and Westpac Banking Corp. run their brands. Commonwealth Bank of Australia owns ASB Bank, and National Australia Bank Ltd. controls the Bank of New Zealand.
Willis states that in the long term, public share offerings will be the most accessible source for Kiwibank’s additional capital.
She continued stating that no decision will be made regarding public offerings in this government term since Kiwibank will be prepared for public offerings once its digital transformations are completed and finished by 2028.
She added that if the initial public offering is not authorized by the future date, investors might have to sell their shares back to the Crown at a fair value determined through an independent assessment.
The challenge with this plan is that by restricting the organizations that can only participate in New Zealand, Willis may not get optimal value for money, which could come from being indifferent to the source of capital.
Investors will become nervous about future restrictions on selling their investments, which might reduce their interest in investing.
When faced with this criticism, Willis said that the government was advised that a broad public offering would be the best decision in the medium run since it would give the best price and most favorable investment for Kiwibank.
Willis has also issued a new Financial Policy Remit and a letter of expectations to the Reserve Bank to emphasize that the government is committed to fostering competition within the banking industry.
She stated that the RBNZ anticipates expanding access to the exchange settlement system, reassessing the risks for the range of bank lending, reviewing the minimum capital requirement for the new entrants in the banking industry, and working with the industry to increase the accessibility of bank accounts.
The big banks should be cautious since the government is open to the possibility of future actions if they do not observe significant progress.
