Source: New Zealand Government
The Government is pushing ahead with moves to increase banking competition by boosting Kiwibank and taking steps to ensure the Reserve Bank places greater importance on competition in the sector, Finance Minister Nicola Willis says.
“The change will enable the New Zealand-owned bank to more vigorously compete against the big four Australian-owned banks.
“New Zealand is often seen as the little brother against the Aussies. We’re trying to give that little brother a little bit more muscle to get a fairer deal for Kiwis.
“As a first step, the Government is progressing moves to provide Kiwibank with access to more capital.
“The more capital Kiwibank has the more it can compete and the greater the likelihood of interest rates coming down for all bank customers.
“Kiwibank’s parent company – Kiwi Group Capital – and the Treasury have been directed to talk to New Zealand KiwiSaver funds, New Zealand investment institutions and New Zealand professional investor groups about a potential investment of up to $500 million in the bank.
“If a private placement occurs this would be an asset capitalisation, not an asset sale, as all funds raised would be for Kiwibank’s future business growth. There would be no return of capital to the Crown to deploy elsewhere.
“In the long-term, the most accessible source of additional capital for Kiwibank is likely to be through a public share offering. However, Kiwibank will not be ready for this until its current digital transformation is completed – expected by 2028 – so no decision on an initial public offering will be made in this term of government.”
Nicola Willis says the Government understands that before making any investment, institutional investors will require a clear option to sell shares.
“If an Initial Public Offering (IPO) is not approved at a later date, this could take the form of having an option for investors to sell their shares back to the Crown at an independently assessed fair value.”
Nicola Willis says she has also communicated her expectations that the Reserve Bank to place a greater emphasis on banking competition across a range of its policies and actions.
“The Financial Policy Remit, issued today, emphasises the importance the Government places on competition in the banking sector.
“The Government expects the Reserve Bank will meaningfully train its focus on competition while pursuing its financial stability objective.
“The new Letter of Expectations to the Reserve Bank outlines my expectations that the bank will prioritise:
- expanding access to the exchange settlement system with decisions by March 2025
- reviewing risk weighting for a range of bank lending
- reviewing minimum capital thresholds for new entrants into the banking sector
- reviewing restrictions on the use of the word “bank”
- dismantling barriers to lending for housing on Māori freehold land; and
- working with industry to make bank accounts more widely available.
“The Commerce Commission’s market study of the banking sector found that the sector was uncompetitive, and New Zealanders were not well-served by a highly profitable, two-tier oligopoly.
“Cabinet expects the major trading banks work to deliver a fairer deal for bank users, including accelerating open banking, improving the payments New Zealand switching service and allowing greater comparison between home loans.
“The big banks are on notice. The Government is explicitly leaving open the possibility of further action if we don’t see enough progress.
“Competition is king. This is a pro-competition Government because competition means levelling the playing field.
“The changes the Government is making will tilt the balance more in favour of bank customers and smaller players in the sector.
“We want to see increased investment in innovation, more competition between the banks and better service for some of the businesses and people that are poorly served by existing arrangements.”
