Kiwibank cuts rates for green improvements

Kiwibank is offering cut price loans to fund environmental improvements by businesses.

Tuesday, August 9th 2022, 5:46PM

by Eric Frykberg

It say the rate will vary as is usual for commercial customers, but on average will be 50 to 100 basis points lower than what would otherwise have been charged.

The money will be available for small operators, SMEs and corporations from September 26 onwards. It will be payable to fund 13 classes of project, such as switching to electric vehicles, or using sustainable packaging or green buildings.

Kiwibank head of sustainable finance Tom Williams, said the scheme would work under the same terms and conditions as other business loans and would not lock in customers to the bank.

He said firms had indicated they wanted access to this type of loan.

“But there is an apprehension that it is more expensive, and people are not quite sure where to start, so we wanted to mainstream access to sustainable finance and make it really simple.”

Other banks have brought in similar schemes for worthwhile projects, such as Westpac's loans to fund healthy homes. These raise the question of how banks can afford it. After all, the money they acquire in the first place costs the same, whether from deposits or from the money markets, so lending it out for less would normally hit them in the balance sheet.

But Williams dismissed these concerns.

“When you look at what these loans do, you could actually say that they are reducing the risk that business poses to us, they are producing a more resilient business.”

He also raised the possibility of the cost being met by a change in wholesale financing arrangements in future. For example, the price of bonds could come down to better reflect the benefits of environmental improvements.

In fact, this may or may not happen, but the bank was certain of its actions, even if bonds didn't come down.

“Even if they don't, we are happy with where we stand. We take our purpose to make Kiwis better off really seriously.

“Regardless of whether there is any relief in the future, this is something that we want to do.”

There has been some speculation that Kiwibank would be financing this scheme by using cheap funds from the Reserve Bank via the Funding for Lending programme, which is drifting towards its finale.

But Williams said that was not the case, nor would the bank charge higher interest rates to other customers to compensate for the lower rates offered under this programme.

According to one independent banking expert, Kiwibank's strategy was to offset lower margins with higher volumes as borrowers become attracted to the scheme. In addition, the good publicity would make it worthwhile.

Tags: Kiwibank