Capital raising options for Kiwibank to be investigated – Willis

Key points:

The Government is looking at options for raising new capital for Kiwibank to allow it to exert "real competitive pressure" on the four big Australian-owned banks operating in New Zealand.

It follows the release of a report by the Commerce Commission today, which found there was little competition in New Zealand’s banking sector. The report found that the four big Australian-owned banks made high profits, while the Reserve Bank's rules made it hard for smaller banks to challenge.

The Commission made several recommendations to the Government so competition in the banking sector could be improved.

Among the recommendations was a call to increase Kiwibank's capital funding. It currently has a market share of 7%.

In a statement this morning, the Government said it would be acting on all 14 recommendations made by the Commerce Commission.

“Today’s report calls-out the market behaviour of New Zealand’s big four banks: they are highly profitable compared with international peers, they lack innovation and do not aggressively compete for customers,” finance minister Nicola Willis said.

She described New Zealand’s banking sector as a “cosy pillow fight” between the big four banks, with “profit margins coming first and everyday Kiwis coming second”.

“As a result, New Zealand bank customers are getting a raw deal: they face higher prices, fewer choices and poorer service, even when compared to customers of the same parent banks in Australia.

“This is not good enough. Our Government will inject some genuine competition into the market for the benefit of all New Zealanders and will respond with urgency to all 14 of the report’s recommendations.”

Willis said she shared the Commerce Commission’s view that Kiwibank needed to be “stronger” and more “disruptive”.

“I want it to have the growth capital it needs to become a ‘maverick’ that exerts real competitive pressure on the big four.”

She said she had asked Treasury to engage with Kiwibank’s parent group, Kiwi Group Capital, to look at options for raising capital, including from KiwiSaver funds, New Zealand investment funds and investment from “everyday” New Zealanders.

“I will take proposals to Cabinet no later than December this year.”

Kiwibank chief executive Steve Jurkovich responded to today's Commerce Commission report and ministerial announcement by saying a truly competitive market would allow easy access to the right personal banking services for New Zealanders.

"Kiwibank is up for the challenge of fulfilling the role of 'maverick' and taking on the larger banks," he said. "That is key to making Kiwi better off."

Responding to the recommendation that the Government should consider how to provide it with more access to capital, Jurkovich said: “We’d welcome more access to capital over time to deliver on our purpose. Our multi-year transformation will deliver more scalable systems that will mean we can further accelerate our current growth.

"That said, any decision around capital, and the sources of that capital, sits with our shareholder, Kiwi Group Capital, and the Crown as the 100% shareholder."

ANZ New Zealand's chief executive Antonia Watson said the bank disagreed with the Commerce Commision's findings.

"We disagree with the commission's characterisation of New Zealand's banking sector, because our staff go out every day to win and keep customers in a highly competitive market," she said in a media release.

Watson said New Zealand's market structure of "five larger banks was consistent with other countries of both similar and larger sizes".

"International experience shows that successful banks require scale because of the complex technologies, capital and costs involved," she said.

"And in return this creates a stable financial system that plays an important role in an economy, attracting capital into a country and providing a safe environment for people to go about their lives, run businesses and create wealth."

Watson added: "We're supportive of the commission's three main recommendations around open banking, the regulatory environment and growing Kiwibank.

"Enhancing competition in any industry is a good thing and I back our staff, products and services to beat our competitors."

Another set of recommendations made by the Commerce Commission were around the policies and decisions of the Reserve Bank, saying it should place greater emphasis on competition.

“I agree and I intend to issue a new Financial Policy Remit this year to make clear the Government’s expectation that the Reserve Bank, in its policies and actions, supports a more competitive banking sector,” Willis said.

“International experience shows that competition is one of the most important drivers of long-term growth and productivity. Tuning-up competition in the banking sector will therefore play vital part of the Government’s plans to rebuild the economy.”

It also recommended the government should commit to ensuring open banking is fully operational by June 2026.

“We are implementing ‘open banking’ and are on track to meet the timeline the Commission has recommended,” commerce and consumer affairs minister Andrew Bayly said.

“Open banking will make it easier for Kiwis to find services tailored to their needs, creating room for innovative, start-ups to challenge the big established banks.

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“We agree with the Commission that open banking has the greatest potential to promote ongoing disruptive competition in the medium to long-term and are committed to facilitating its uptake as quickly as possible.”

He also said the Government had scrapped “overly prescriptive” affordability regulations in the Credit Contracts and Consumer Finance Act “so Kiwis will benefit from easier and faster loan processing”.