Meaningful difference seen as coming from Kiwibank’s capital raise
Starting with institutional investment and an eventual IPO is an excellent start for turning Kiwibank into a meaningful disruptor, David Cunningham Squirrel Mortgages chief executive says.
Wednesday, December 11th 2024, 9:32AM 
2 Comments
by Sally Lindsay
Kiwibank has been given the green light by the Government to raise $500 million from institutional investors with an IPO in 2028 being contemplated.
Cunningham says it was the only recommendation from the Commerce Commission’s study into bank competition that can make any meaningful difference.
“It will be impactful over time on competition. We've had the evidence of that already. About a year ago Kiwibank had a competitive interest rate slate at the time the main banks were marching out margins to a wider level. Kiwibank was swamped by borrowers and had to stop.”
Part of that was access to capital, part of that was access to staff because of the volume that was coming its way it needed more staff, Cunningham says.
What that demonstrated, he says, was that a player who has fairer pricing, at times, can win market share.
The capital raise will act as a catalyst for increasing competitiveness on the lending side, according to Cunningham.
He doesn’t see Kiwibank’s access to more capital will change the dynamics of growth in the market, its impact will be on price in the market.
There's always ample money for lending, so it becomes more of a price equation – what is a fair margin on lending?
The capital raise is a good start to providing more competiton. There will eventually be two sources of capital for Kiwibank. “To start with private enterprise and then listing on the stock exchange to bring in other investors. New Zealanders have indicated already they would be keen to own a stake in Kiwibank.”
Useful but not important
He says all other stuff recommended by the commission, such as sending mortgage applications to three banks is simply wrong, or other impactful changes such as open banking were already on the go.
The signal Finance Minister Nicola Willis sent to banks this week to do what they can, do what they need to increase and enable competition and the threat of regulations if they don’t is useful, he says.
“That takes in things like the wholesale arms of banks supporting providers like Squirrel, fintechs and other specialist banks getting underway. An important part of that is access to payments systems either via banks or direct access TCS accounts and arrangements for facilitating all the elements of open banking.
It's industry not putting barriers in the way, Cunningham says.
More innovation
iLender skipper Jeff Royle tends to agree, and he says hopefully it will also lead to more product innovation.
He says the four main banks are long overdue for some serious competition as the specialist lender space is not only just about price, it is also about product.
“There's nothing innovative coming out of mainstream lenders and sometimes when they do have a new product, unfortunately the regulators tend to put a dampener on it.”
He points to Westpac. “A year ago, it had a brilliant dollar for dollar refinance product, with minimal documentation required to access it. Along comes the Reserve Bank with its new DTI tool and one of the side effects was Westpac had to modify its product. Basically, it stifled innovation.”
Royle says like so many things, new regulations can often have unintended consequences. It’s not always the banks’ fault that they can't innovate. “I sometimes think they must feel as if they're working with two hands tied behind their backs. And that's me being charitable.”
In Royle’s view, Kiwibank’s reputation for being adviser-centric and helpful can only be enhanced with a capital raise.
He says it will have an impact. “Kiwibank just seems to have a can-do attitude. “If there is a way to make a deal work, it just tends to have the attitude of let's try to make this work. The bank is not unique in that space, but it is strong in that space.”
In the adviser world, customer first is everything, Royle says. If Kiwibank gives the main banks run for their money in terms of product and pricing, that means greater options for the adviser, which means greater options for the consumer, he says.
| « Govt greenlights Kiwibank raising $500m ahead of eventual float | Competition is real - ANZ » |
Special Offers
Comments from our readers
Sign In to add your comment
|
|
Printable version |
|
Email to a friend |
If we really want to see increased competition in the NZ banking sector, we need to remove the overregulation that has occurred within the industry to allow more new lenders to enter the market. The NZ banking association has already made this very recommendation earlier this year. They acknowledge that the regulation we have currently makes it too hard for new competitors to enter the NZ market. Might be time for the Commerce Commission to wake up and get their heads around that fact. Wellington bureaucrats and the regulation they currently produce annually are the single biggest obstacle to increased competition in the banking sector. The same also applies to other industries in New Zealand. We saw HSBC exit the New Zealand home loan market last year sighting this increased regulation as one of the reasons they were pulling out. Maybe the climate-related disclosure requirements introduced for large publicly listed companies, large insurers, banks, and investment managers was the final straw. New Zealand needs more main bank lenders operating not less as this will ultimately see more customers getting a better deal on their home loan. As a small country we need to start having a serious conversation now about the amount of overregulation that has occurred and the subsequent impact it’s had on competition for Kiwi consumers, home loan customers included.
It’s time to put the horse that is Kiwibank out to pasture and open up the playing field to new contestants. Believe me you’ll see the likes of ANZ, ASB , Westpac and BNZ suddenly become much more competitive with their interest rates if we had another four main bank players suddenly operating in the NZ market. This isn't rocket science but seems to be for the Commerce Commission based on their primary recommendation made to the Government to increase competition between the banks i.e. give Kiwibank more capital. Once again the Commerce Commission appears to be ineffectual in its stated role of been the primary advocate for the New Zealand consumer.