The Initial vote on Kiwibank in the Labour-Alliance government in 2000 was 16 Labour against to 4 Alliance for.

I was there when this was reversed, and in 2001 the 4 insurgent Alliance Ministers – Jim Anderton, Sandra Lee, Laila Harre and Matt Robson- received our foundation Kiwbank cards in Jim’s office. New Zealand once again had a popular publicly owned bank to aid its development and counter the strangling grip of the privately owned foreign banks. Finance Minister Cullen said, begrudgingly, that the bank, operating from New Zealand Post premises, would get an $ 80 million loan , but not one cent more. Helen Clark continued her opposition by announcing she would remain an Australian Big 4 customer.

Kiwibank had been a long journey. Why had Alliance members campaigned so long and hard for this goal? Jim Anderton had  spelt out the reason in 1988 as the Lange Labour government continued its crash sale of public assets by putting the Bank of New Zealand with its 20 percent share of the banking sector on the auction block. In a 1988 parliamentary speech that led to his expulsion from the Labour caucus Jim Anderton said:

The sale of State Owned Enterprises transfers ownership, control, wealth and resources from the public sector to the private sector…Once it is sold the policy options available…are almost certainly removed…Even after the worst stock market crash in New Zealand’s history…the Bank of New Zealand made an operating profit of $182 million in the 1987-88 financial year… (it) is virtually a perpetual asset…(and) commands 20 percent of the current financial system”

As a highly capitalised bank the BNZ, meeting its huge taxation and dividends obligations to the government and with its long history in the development of New Zealand as an arm of government, the BNZ limited the destructive side of  private banks and kept profits and investment capacity in New Zealand.

Within a short time, an expanding  Kiwibank kept local branches open, and rapidly attracted customers. It paid back the initial government capital within 3 years. It now has over one million customers, including over 40,000 businesses.

Michael Cullen, resiling from his initial hostility , was to praise Kiwibank in his autobiography as follows:

But Kiwibank proved its real worth to New Zealand in the early stages of the global financial crisis. The Australian  banks withdrew substantially from the New Zealand mortgage Market. Kiwibank stepped  into the breach. Despite its very small size compared with the Aussies, it was for a year or two the largest provider of new mortgages…since Kiwibank was set up, the Australian banks have emphasised their New Zealand character…

The former Finance Minister then warned, and Minister Willis would do well to heed,  about the true character of the private banks:

…when the crunch comes , one should never be fooled  about where their primary accountability will lie.

In his 1988 speech to Parliament, opposing his own public asset selling Labour Party,  Jim Anderton also outlined the vision which in 2002 was to underpin both the  Kiwibank and  a newly minted  ministry of economic and regional development, of the public bank playing an essential role in national economic development:

…if it were decided to run an active regional development policy the geographical spread of the branches of the Bank of New Zealand makes the bank the only Government agency with the detailed knowledge required to act of the Government…of providing long -term development funds for viable projects in all the regions…sale of such an extensive economic power…may lead to the operation of the bank for purely financial commercial reasons…small borrowers , and even Governments, suffer when dominant banks  are run for short term financial reasons and profits.

All of these advantages are now at risk as the government , using the excuse of the need to raise capital for the bank to take on the Big 4, sets out to gift an essential economic tool to the private sector. The New Zealand Herald revealed the government’s intentions on 25 July:

In a routine letter of expectation sent to Kiwibank’s board chairman David McLean in April, shareholding ministers suggested they were open-minded as to how Kiwibank grew… ( Minister of State Owned Enterprises ) Goldsmith said the Government had no plans to privatise state assets, but conceded a possible outcome of the purpose statement exercise could  be that it decided it no longer wanted to own an asset.

Renationalisation Pledge

Warning bells should ring for Labour and the Greens. Labour members and voters triumphed over the initial opposition to Kiwibank of Helen Clark and Michael Cullen to Kiwibank. The Green Party has pledged to oppose asset sales. As Alliance MPs, Green Party founders Jeanette Fitzsimons and Rod Donald campaigned for Kiwibank . Labour and the Greens must form a united front in defence of Kiwibank.  A pledge to re-nationalise and expand through government financing ,there are multiple financing methods available , will deter the circling sharks which include the Australian bank competitors.

Governments of all stripes throughout the world recognise the crucial developmental role of a large state bank as an essential tool for long term investment and development. Labour and the Greens can unite to build on the vision of Jim Anderton and  ensure that New Zealand is not, once again, deprived of its state-owned bank by a short-sighted government acting in the narrow interests of the private sector and not in the best interests of New Zealand.

References:

• Building-a-new-public-banking-ecosystem
• BNZ Bill speech in the House
• LF Grant R 21.11.2022
• NZH 18 September 2024 Arena Williams MP

*******

In 2000, the Initial vote on Kiwibank in the Labour-Alliance government was 16 votes against from Labour, and four votes in favour from the Alliance.

I was there when this was reversed, and in 2001 the four insurgent Alliance Ministers – Jim Anderton, Sandra Lee, Laila Harre and Matt Robson- received our foundation Kiwibank cards in Jim’s office.

New Zealand once again had a popular publicly owned bank to aid its development and counter the strangling grip of the privately owned foreign banks.

Finance Minister Hon. Michael Cullen said, begrudgingly, that the bank, operating from New Zealand Post premises, would get an $ 80 million loan , but not one cent more. Helen Clark continued her opposition by announcing she would remain an Australian Big 4 customer.

Kiwibank had been a long journey.

So, why had Alliance members campaigned so long and hard for this goal?

Jim Anderton had spelt out the reason in 1988 as the Lange Labour government continued its crash sale of public assets by putting the Bank of New Zealand with its 20 percent share of the banking sector on the auction block. In a 1988 parliamentary speech that led to his expulsion from the Labour caucus Jim Anderton said:

“The sale of State Owned Enterprises transfers ownership, control, wealth and resources from the public sector to the private sector…Once it is sold the policy options available…are almost certainly removed…Even after the worst stock market crash in New Zealand’s history…the Bank of New Zealand made an operating profit of $182 million in the 1987-88 financial year… (it) is virtually a perpetual asset…(and) commands 20 percent of the current financial system.”

As a highly capitalised bank the BNZ, meeting its huge taxation and dividends obligations to the government and with its long history in the development of New Zealand as an arm of government, the BNZ limited the destructive side of  private banks and kept profits and investment capacity in New Zealand.

Within a short time, an expanding  Kiwibank kept local branches open, and rapidly attracted customers. It paid back the initial government capital within 3 years. It now has over one million customers, including over 40,000 businesses.

Michael Cullen, resiling from his initial hostility, was to praise Kiwibank in his autobiography as follows:

“But Kiwibank proved its real worth to New Zealand in the early stages of the global financial crisis. The Australian  banks withdrew substantially from the New Zealand mortgage Market. Kiwibank stepped  into the breach. Despite its very small size compared with the Aussies, it was for a year or two the largest provider of new mortgages…since Kiwibank was set up, the Australian banks have emphasised their New Zealand character…”

Michael Cullen, the former Finance Minister then warned, and Minister Willis would do well to heed,  about the true character of the private banks:

“…when the crunch comes , one should never be fooled  about where their primary accountability will lie.”

In his 1988 speech to Parliament, opposing his own public asset selling Labour Party,  Jim Anderton also outlined the vision which in 2002 was to underpin both the  Kiwibank and  a newly minted  ministry of economic and regional development, of the public bank playing an essential role in national economic development:

“…if it were decided to run an active regional development policy the geographical spread of the branches of the Bank of New Zealand makes the bank the only Government agency with the detailed knowledge required to act of the Government… of providing long-term development funds for viable projects in all the regions…sale of such an extensive economic power…may lead to the operation of the bank for purely financial commercial reasons…small borrowers , and even Governments, suffer when dominant banks  are run for short term financial reasons and profits.”

All of these advantages are now at risk as the government , using the excuse of the need to raise capital for the bank to take on the Big 4, sets out to gift an essential economic tool to the private sector.

The New Zealand Herald revealed the government’s intentions on 25 July:

“In a routine letter of expectation sent to Kiwibank’s board chairman David McLean in April, shareholding ministers suggested they were open-minded as to how Kiwibank grew… ( Minister of State Owned Enterprises ) Goldsmith said the Government had no plans to privatise state assets, but conceded a possible outcome of the purpose statement exercise could  be that it decided it no longer wanted to own an asset.”

Renationalisation Pledge

Warning bells should ring for Labour and the Greens. Labour members and voters triumphed over the initial opposition to Kiwibank of Helen Clark and Michael Cullen to Kiwibank. The Green Party has pledged to oppose asset sales. As Alliance MPs, Green Party founders Jeanette Fitzsimons and Rod Donald campaigned for Kiwibank . Labour and the Greens must form a united front in defence of Kiwibank.  A pledge to re-nationalise and expand through government financing ,there are multiple financing methods available , will deter the circling sharks which include the Australian bank competitors.

Governments of all stripes throughout the world recognise the crucial developmental role of a large state bank as an essential tool for long term investment and development. Labour and the Greens can unite to build on the vision of Jim Anderton and ensure that New Zealand is not, once again, deprived of its state-owned bank by a short-sighted government acting in the narrow interests of the private sector and not in the best interests of New Zealand.

EDITOR’S NOTE: Matt Robson and others are calling on the New Zealand Government to abandon any plans to privatise Kiwibank and to commit to keeping it in public ownership.

You can sign the petition here.

To sell, or not to sell – that is the question various governments have asked since Kiwibank was established in 2002. Now it’s the turn of the current National-led coalition to examine the bank’s state ownership.

Ministers have asked Kiwibank’s board to explore avenues for the bank’s expansion, potentially including private sector or Crown entity investment.

This comes just two years after the previous Labour government spent NZ$2.1 billion to secure complete ownership of Kiwibank, and is part of the coalition’s drive for productivity, growth and public sector efficiency.

The latest attempt to help the bank prosper while staying fully New Zealand-owned should also be seen in the context of the recent Commerce Commission draft report on banking services, which identifies Kiwibank as a market disruptor.

If properly capitalised, the report says, Kiwibank should make New Zealand banking more competitive. Supporters of partial privatisation or publicly listing a proportion of Kiwibank shares agree. They also argue it would boost the stock market and funnel profits back to New Zealanders.

The government has not proposed anything specific yet. But any plans to part-privatise Kiwibank so soon after the state effectively bailed it out deserve close scrutiny. Such a move could well do more harm than good, for four main reasons.

1. Banking concentration is normal

New Zealand’s historical banking concentration and the market domination of four large Australian-owned banks is not going to change any time soon.

But a concentrated banking sector is not at all bad, or even abnormal, and occurs in many countries. Three banks in the Netherlands, for example, currently own 84% of total banking assets. The smallest, ABN AMRO, is larger than all of New Zealand’s banks combined.

Despite this, the Dutch are less vocal about lack of competition and associated high profit margins. There is an acceptance, especially among European Union bank regulators, that the alternative of more small banks is not a panacea.

Small banks in EU countries such as Spain and the Netherlands have failed more often than large ones. Moreover, innovation in banking and finance comes mainly from large banks.

2. Capital investment and growth

The notion that more capital will foster growth puts the cart before the horse. As fans of TV investment shows Shark Tank or Dragons’ Den will know, only firms with a compelling value proposition attract funding.

Kiwibank’s track record leaves something to be desired. For example, the press release accompanying its 2023 results listed the introduction of Apple Pay as an important highlight. Other banks began offering this service in 2016.

Furthermore, at 7.5%, the bank’s return on equity is the lowest of the largest six banks. And its core capital ratio has not increased since 2018, making it harder to meet increasing Reserve Bank capital requirements.

After a minor capital injection of $225 million last year, Kiwibank chief executive Steve Jurkovich said the bank’s loan book could significantly increase. According to the Reserve Bank’s financial strength dashboard, however, the value of Kiwibank’s net loans and advances grew by 2.7% and 1.8% respectively in the quarters ending December 2023 and March 2024.

That was not significantly different from growth in previous quarters going back to 2018, which averaged 2.3%. In other words, Kiwibank’s own experience shows flaws in the capital-before-growth narrative.

3. Foreign ownership by stealth

In an ideal world – with deep and liquid capital markets, and a large, growing and productive economy – having a 100% Kiwi-owned contender bank would work.

In reality, New Zealand lacks these features. In fact, Kiwibank’s ownership restrictions – which preclude floating or selling shares directly – have seen previous owners surrender their holdings to the government.

Part-privatisation would therefore require shares to be sold at a deep discount. And, as the sale of Kiwi Wealth to Fisher Funds in 2022 suggests, this may ultimately be financed by foreign private equity.

This could be achieved by way of a leveraged buyout, where a foreign private equity firm lends large sums of money to, say, a KiwiSaver fund to buy shares. Technically, the KiwiSaver fund would be the 100% New Zealand-owned firm holding the Kiwibank shares. But that ownership would be largely in name only.

The New Zealand owner would pay hefty interest expenses to the private equity firm. And it’s likely the private equity firm would want to tear Kiwibank apart to cut costs and improve efficiency.

By comparison, perhaps the current arrangement – four dominant banks owned by parent banks in a geographically and culturally close country – is not that bad.

4. Unintended consequences

Finally, there is the problem of reputation and moral hazard. Investors would be sceptical if Kiwibank were to be partly privatised, as history shows its ownership seems to depend on the government of the day.

Given that uncertainty, investors might only buy shares sold at a deep discount, or if the shares offered a high return – the kind private equity firms require.

In turn, this could prompt the bank to engage in excessive risk taking, which creates the kind of disruption no one wants. Buyers may also want a guarantee they can put the shares back to the government if the bank fails to perform well.

Rather than rush to part-privatise, Kiwibank should focus on strengthening its capital base, improving performance, and establishing a clear track record of growth and innovation.

Only then should any change in ownership be considered. The path to a more competitive banking sector in New Zealand requires patience, strategic planning and a realistic assessment of market conditions, not hasty structural changes.

Martien Lubberink does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

– ref. Owner beware: 4 reasons why selling part of Kiwibank could do more harm than good – https://theconversation.com/owner-beware-4-reasons-why-selling-part-of-kiwibank-could-do-more-harm-than-good-235885

Evening Report looks into the separation of Kiwibank from New Zealand Post, and considers the impact on the public’s access to banking services in their communities. Kiwibank. What’s going on?

Kiwibank and New Zealand Post are in the process of separating the two businesses. This means that both Kiwibank and New Zealand Post are looking at their network models, going forward.

Kiwibank’s decision means that they are looking at having two different types of branches.

One type will be Kiwibank owned and will concentrate on purely banking services. The other type of Kiwibank outlet will be a Transactional Plus model for franchise branches.

This new model will affect the availability of services at the franchise branches which incorporate New Zealand Post.

There will be a reduction in services regarding opening and closing accounts. Foreign currency services will also be affected.  Though it is understood that many franchise branches may still be able to continue providing these particular services.

Kiwibank Closures

Kiwibank launched in 2002 and by the end of that year had 211 branches situated throughout New Zealand. It was the brainchild of the late Jim Anderton, who advanced the idea that New Zealanders needed a bank of their own, a bank that operated on Kiwi values and as an alternative to dominant foreign owned and controlled banks. Kiwibank’s business model was pitched while Jim Anderton was the leader of the Alliance Party and deputy prime minister in the Labour-Alliance coalition government (1999-2002).

Kiwibank was able to open so many locations due to Kiwibank’s banking services being partnered with New Zealand Post. It was a clever move that ensured Kiwibank had a presence and branch all over the country.

But now, New Zealand Post and Kiwibank are in the process of separating out their services. This process will lead to a reduction of the number of actual physical branches.

As at October 18, 2019 there were 208 total physical points of presence for Kiwibank (number excludes ATMs).

This number is broken down into:

• 42 standalone Kiwibank branches (financial service only)
• 33 co-located shared service branches
• 115 co-located franchises
• 18 Kiwibank agents (transaction only).

In the period October 1, 2018 to September 30, 2019: 24 Kiwibank outlets that were shared with NZ Post were transitioned  to standalone Kiwibank branches in the same location. Kiwibank also relocated in five areas – Tauranga, Henderson, Queenstown, Ashburton, and Porirua. Kiwibank also withdrew from 18 shared premises.

According to Kiwibank, where they have made the decision to withdraw, there are other branches in close proximity (no more than 15km away).

Kiwibank states: “We are also part of the NZBA coordinated Regional Hubs pilot and will provide shared banking services with five other banks in four regional locations including Martinborough, Opunake, Stoke and Twizel.”

In the next 12 months, Kiwibank has confirmed withdrawal dates for six locations. Also, Kiwibank is relocating in two areas, Westgate/North West and Newmarket, and opening a new Kiwibank standalone branch in Sylvia Park. Kiwibank also intends to transition five other shared Kiwibank and NZ Post shops to standalone Kiwibank branches which will stay in the same location.

Kiwibank has also confirmed it’s working through additional closure plans and communicating its intentions for further closures over the next 24 months.

Kiwibank defends its decision to close branches by pointing out that it is committed to retaining a presence in the regions and investing in standalone branches in places such as Westport, Whitianga and Tokoroa.  For customers in urban areas where Kiwibank has withdrawn services other banking options are suggested.

In correspondence with Evening Report, Kiwibank states: “Branch numbers will continue to change as our separation from NZ Post plays out. For every city where we consolidate there is a regional town celebrating our investment in their community.”

It adds: “As you can see these changes are complex and the numbers constantly changing. Driving our strategy is feedback from Kiwibank customers who are telling us they want an environment better suited to more in-depth financial conversations. This means a focus on financial services and consideration to how we best meet customer demands and stay relevant for our customers in to the future.”

The Banking Environment – Physical banking services in New Zealand (as at October 2019)

Although it is the fifth largest bank in New Zealand, Kiwibank still has the largest retail footprint in New Zealand.

According to the 2018 KPMG Report on banking, Kiwibank is the only bank with more than 200 physical points of location.  Australia New Zealand bank (ANZ) had 179 branches in 2018 while Westpac had 161 locations throughout New Zealand.  All the major banks had a reduction in physical locations for banking according to the KPMG survey.

Kiwibank’s suggested solutions to reduced services

Senior citizens challenged by the modern internet world and the potential closure of their Kiwibank are being offered the support of a “Kiwibank Angel” and a hearty cuppa tea. This is designed to help people who remain unfamiliar with internet banking, to learn, or be assisted to complete their banking tasks.

Kiwibank also intends to tackle growing customer dissatisfaction with the withdrawal of physical banking services by partnering with Digital Inclusion Alliance Aotearoa. This is an Alliance that delivers ‘Stepping UP’ Digital Banking courses in libraries and community centres across the country. This course is open to anyone, not just Kiwibank customers.

Other ways Kiwibank intends to mitigate grumpy customers that feel ‘Jim’s bank’ is being messed with is by supporting Digital Inclusion Alliance Aotearoa’s DORA (Digital on Road Access) – a portable bus unit that travels around Aotearoa offering online banking training in retirement villages, near Marae and in other community locations.

At some Kiwibank branches there are a number of services provided such as providing identification through the Real Me service.  But how many branches provide these services, and can new owner operator franchise outlets choose not to provide these and other services?

Kiwibank responds: “As at today we have 87 locations which provide RealMe identity services. Locations of the outlets offering RealMe is determined by geographic spread for the service rather than by operator choice. To date we have only included the service in eight of our standalone Kiwibank branches due to geographic coverage requirements.”

But is this good enough?

At present the banking jury is out on whether Kiwibank’s solutions will work in transitioning, and appeasing, discontented customers who want face-to-face customer service.

Kiwibank states: “Like other industries banking is being disrupted. The preferences of our customers are changing, and we must evolve to stay relevant.

“Although it is the fifth largest bank in New Zealand Kiwibank still has the largest retail footprint and we’re proud of that.

“We have committed to retaining a presence in the regions, investing in standalone branches in places such as Westport, Whitianga and Tokoroa. Where we have withdrawn services, it is in urban areas where there are other options nearby.

“We’re putting a lot of effort into education and support for our customers, especially those challenged by a changing world,” Kiwibank states.

Kiwibank’s board of directors are appointed by shareholders of Kiwi Group Holdings Limited (ACC, NZ Post and NZ Super Fund) in accordance with the Shareholders’ Agreement and requirements of the Reserve Bank. The shareholders are the New Zealand Government, currently represented by various ministers in the Labour-led Government.

EDITOR’S NOTE: Evening Report is continuing its investigation into whether Kiwibank will retain the elements of its original purpose and presence. We are seeking a response from the Government and have Official Information Act requests lodged with appropriate ministers. To be continued…