Opinions are divided on whether the government’s purchase of Kiwibank will be a win for taxpayers.photo/provided
Treasurer Grant Robertson has pledged to make Kiwibank directly owned by New Zealand taxpayers.
Crown has agreed to buy the bank’s parent company, Kiwi Group Holdings (KGH), from state-owned entity NZ Post.
Accident Compensation Corporation (ACC) and New Zealand Superannuation Fund.
Robertson said NZ Post and ACC actually did not want to continue to hold part of KGH as it was not in line with their “long-term strategy and investment plan”.
The Super Fund is interested in increasing its stake in KGH, provided it has the flexibility to bring in private sector capabilities and governance, and to exit investments in the future. However, the proposal did not satisfy the government, which wanted Kiwibank to remain fully public.
So, if the Reserve Bank approves the proposed $2.1 billion deal, Kiwibank will be owned by a new company, Kiwi Group Capital, which will have a separate board from Kiwibank.
The arrangement was seen as a victory for the bank. But opinions are divided on whether taxpayers will win.
Bruce McLachlan – former chief executive of The Co-operative Bank and now head of Fisher Funds (which recently agreed to buy KGH’s wealth management business) – believes 100% government ownership will make Kiwibank more competitive.
Any business with a long-term plan for growth, competition and sustainability needs a stable and supportive shareholder, he said.
However, former BNZ chairman Kerry McDonald was less charitable, saying “government ownership rarely brings success”.
Like the New Zealand Superfund, he commented on Kiwibank’s governance.
“I would focus on the quality of leadership in terms of governance and management,” he said.
“Otherwise, there will be some cosmetic changes in government ownership. These may satisfy the Reserve Bank, but may not increase their quality and competitiveness.” [Government] should find. “
Like other New Zealand-regulated banks, Kiwibank will need to increase the amount of capital it holds to meet the Reserve Bank’s stringent requirements, which will come into full effect in 2027.
Martien Lubberink, associate professor and banking capital expert at Victoria University of Wellington, said Kiwibank was lagging behind its rivals in increasing the amount of capital it held.
While other banks have proportionally increased the amount of capital they hold in recent years, Kiwibank’s capital ratios have deteriorated.
Lubberink insists that Kiwibank will either have to take more risk to increase profits or shrink the size of its balance sheet.
Robertson said the government was ready to provide more funding to Kiwibank if needed.
But Kiwibank’s Steve Jurkovich stressed: “Regardless of changes in ownership, we have a self-funded capital plan…
“As CEO, I wouldn’t want to put the bank in a position where we need to go to seek funding. It’s something we can control. We have a capital plan that can meet rising regulatory requirements over time…
“Like any bank, if we can grow faster and the returns are there – of course we’ll be asking for capital. But we’re not in a position to ask for capital.”
Lubberink doesn’t know if the government will eventually need to provide Kiwibank with more money to meet the Reserve Bank’s demands.
“It confuses me why states want to have banks,” he said.
“We ended up funding a very risky institution that might not survive. It’s not great if you ask me.”
If Kiwibank offers something its rivals don’t, state-owned companies may have a case, Lubberink said. but it is not the truth.
“There is hardly any demand,” he said.
Also, “it doesn’t create a level playing field for others who have to compete.”
Former Westpac treasurer Jim Reardon takes a different view.
He believes that Kiwibank has successfully brought competition to the mortgage market.
He said the proposed transition was a great strategy and would provide Kiwibank with the capital it needed to grow. He noted that Kiwibank had expressed “clear ambition” to expand its small business bank account.
Reardon also backed the existence of state-owned banks, saying he believed New Zealanders were uncomfortable with Australian banks dominating the market.
Like Lubberink, he questioned whether Kiwibank could find investors outside the government.
He highlighted how strict the capital requirements for banks are compared to other countries. He also pointed out that Kiwibank did not benefit from the economies of scale enjoyed by Australia’s big banks and therefore had a lower return on equity.