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 
1 Comment
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.”
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The fact that the NZ taxpayer is still having to prop up Kiwibank after 20+ years illustrates that the Government’s experiment owning a bank hasn’t worked. As a country we cannot continue throwing money down a bottomless pit which is what has essentially been happening at Kiwibank since its inception. More capital been provided to Kiwibank will not lead to increased competition from the banks on home loans. Kiwibank has always been capital-hungry, but this is because of the way it has been managed and run over the years. The attitude of management at Kiwibank has always been they can just go back to the Government for more money if needed. This is not sorry indicative of a bank that has been well managed, and I note the comments made this year by several fund managers that Kiwibank’s performance would need to improve, and the bank’s growth strategy scrutinised if private investors were called upon to invest in Kiwibank by an initial public offering.
As other commentators have already said this year 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 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. The Commerce Commission needs 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. HSBC exited 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. We need to start having a serious conversation now about the amount of overregulation that has occurred in New Zealand and the subsequent impact it’s had on competition for Kiwi consumers, home loan customers included.
It is time to put the horse that is Kiwibank out to pasture and open up the playing field to new contestants. If we had another four main bank players suddenly operating in the NZ market it would be guaranteed that kiwi consumers would see the likes of ANZ, ASB , Westpac and BNZ suddenly become much more competitive with their interest rates offered. Simply injecting yet more capital into Kiwibank will not drive the kind of competition that our politicians claim they want from our banking sector.