Saving borrowers money

With a $500 million capital injection, Kiwibank says it can save New Zealanders $1.5 billion by having more aggressive pricing, better terms and better turnaround.

Friday, December 20th 2024, 7:22AM

by Sally Lindsay

Kiwibank chief executive Steve Jurkovich told Parliament’s finance and expenditure committee’s inquiry into banking competition, being “maverick” means being independent and driving a lot more competition against the big four Australian-owned banks.

If Kiwibank’s growth of 9% a year – more than twice that of the big four banks – continues Jurkovich says that will mean $1.5 billion of profit won’t be available for those banks because the New Zealand-owned bank will have driven priced and the variety of products on offer.

Last week Finance Minister Nicola Willis gave the green light for Kiwibank to raise $500 million capital before a possible IPO in 2028.

Making Kiwibank more competitive to take on the big four banks was one of the recommendations of the Commerce Commission’s banking competition inquiry earlier this year.

“If we carry on our growth trajectory, in five years, we will double from where we are now and might be making New Zealand $400-500 million a year, Jurkovich says.

“We will also have a bigger home loan book than BNZ.

“And we will also have lived up to former Labour deputy leader Jim Anderton’s Kiwibank dream, which is to have an impact –sometimes that’s going to be financial and other times it’s going to be a reaction from competitors.”

Jurkovich told the committee $500 million will give the bank a clear pathway, but it is a balancing act, as it must meet the Reserve Bank’s capital requirements, continue to invest in people, technology and processes and grow customers numbers. “They all consume capital.

“If we had $500 million, we could keep growing at our current rate for at least three or four years. If the capital doesn’t arrive, we will still be operating but will have to dial back our growth and won’t be seizing opportunities to deliver more competition.”

He says Kiwibank has a winning strategy – being independent and being clear about the market it is after – first home buyers – and not trying to take every cent off the table.

“What we are trying to do is have a competitive impact and doing it in the right way.”

Other opportunities

The single biggest opportunity in front of Kiwibank is to push harder into small and medium businesses.

Jurkovich believes the bank can propel the right impact into that productive sector of small to medium enterprises. “They are the people who create the economic engine and create the tax revenue that allows us to invest in other things.”

In the past couple of years our big competitors haven’t allocated as much capital to business as they have done in the past, he says.

“It gives us a great opportunity. We have capital we want to put in the hands of people who take risk and grow.

While we have done it successfully, we have such a small market share. Our percentage growth looks great, but our actual growth is at the point we are just getting started.”

Open banking

Kiwibank is behind in introducing open banking compared to the big four.

It is trailing the others because it has chosen sequencing. “It’s not because we are against open banking, Jurkovich says. “For us to build open banking on the technology we have now means we would have to throw it all away and rebuild it again.”

Kiwibank will partner to get open banking off the ground. “We are of a size that means we have to partner. When we introduced Google and Apple Pay customers had to wait until we could build it on technology that was sustainable and future ready.

Building on an old technology stack, it would have collapsed and we saw that once we launched it. It’s uncomfortable but it is the right choice.

Regulatory barriers

One barrier to competition that has always perplexed Jurkovich is how risk is allocated.

If a mortgage borrower at one of the big four banks moves to Kiwibank, the bank needs to carry 45% more capital.

Jurkovich that capital should be allocated on risk. “I am confused that when a borrower moves from one bank to Kiwibank we become 45% more risky.”

He says relying on the internal ratings the big banks do based on confidence, it would be assumed the ratings have some degree of accuracy.

“If you look through their disclosure statements that hasn’t been proven to be correct. “When you have one million customers things can go wrong, so to rely on them to be 45% better than what Kiwibank is seems to be disproportionate.

“There are big elements of what we do that don’t scale down for our size, so that is a headwind.”

Tags: Kiwibank