Editorial: Government’s Kiwibank move a good step in the right direction

Editorial

This week, the Government made a big move in the right direction for the future of Kiwibank and towards shaking up the banking sector.

Finance Minister Nicola Willis announced plans for Kiwibank’s parent company – Kiwi Group Capital – and Treasury to engage with New Zealand KiwiSaver funds, New Zealand investment institutions and New Zealand professional investor groups about a potential investment in the bank of up to $500 million.

While it has stopped short of partial privatisation and a public share issue, the move is a step in that direction.

Willis described it as “an asset capitalisation, not an asset sale” as all funds raised would be for Kiwibank’s future business growth and there would be no return of capital to the Crown to deploy elsewhere.

However, she added that in the long term, “the most accessible source of additional capital for Kiwibank is likely to be through a public share offering”, which would involve the Government selling at least part of the bank.

Willis ruled out any decision on this in the Government’s current term. She noted it would be better to consider an initial public offering (IPO) once Kiwibank’s tech transformation is done in 2028 and it could put a better proposition on the table for investors.

It also makes sense to see what Kiwibank can do with $500m.

This plan offers Kiwibank’s management an opportunity to prove that it is serious about expansion and can deliver.

Half a billion dollars sounds like a lot.

Kiwibank had $32 billion of loans and advances, including $27b of home loans, on issue at the end of June. The new capital could deliver a material boost.

Willis has suggested it would support $10b of new home lending or $4b of new business lending.

But up against Aussie-owned banks that regularly manage annual profits in excess of $1b, it is not in itself a game-changing figure.

The $32b of loans Kiwibank had on issue at the end of June only made up 5.7% of the market.

ANZ, the Australian parent company of ANZ New Zealand (our largest bank) has a capitalisation of around $100b.

Still, Kiwibank’s goal should be for steady but substantive growth. Rushing into an IPO that failed to deliver for investors would be a disaster.

As Willis has pointed out, if the capital raising is successful and delivers for investors, it might enable Kiwibank to get a higher price for its shares.

It also buys time for National to build the political capital required for the asset sale.

As well as convincing voters that partial privatisation is the best move for Kiwibank and Kiwi banking, Willis and her team may need to convince coalition partner NZ First (which is traditionally opposed to asset sales).

Or it may not need them after 2026.

Willis’ proposition is that investors would be given the opportunity to sell their shares back to the Government if an IPO didn’t eventuate and they wanted out of the investment.

Let’s hope that doesn’t happen. There is every reason to assume that the capital raising and growth plans of Kiwibank will succeed. We will then have a pathway to really add some competition to the local banking sector.