Instead of Kiwibank there is a zero-cost way to encourage competition between the banks - Richard Prebble

The Government should sell all of Kiwibank, Richard Prebble believes. Photo / Supplied

THREE KEY FACTS

• The Commerce Commission has suggested a stronger Kiwibank could shake up competition in the sector
• Finance Minister Nicola Willis is open to diluting the Government’s 100% ownership of Kiwibank
• She will take proposals for Kiwibank’s future to Cabinet by December

Richard Prebble is a former Labour Party minister and Act Party leader. He currently holds a number of directorships.

OPINION

Finance Minister Nicola Willis is asking the Treasury to explore ways to increase Kiwibank’s capital. She says she would welcome KiwiSaver providers investing and perhaps a float so mom and pop can invest.

While not totally ruling it out she does not want any foreign investors.

These are terrible ideas.

The Commerce Commission found Kiwibank has not provided competition.

Kiwibank cost the taxpayer $2.1 billion when the Government bought out the New Zealand Superannuation Fund, ACC and NZ Post in 2022. Since November 2022 it has not paid dividends to the Crown.

The NZ Post directors begged the government to take over Kiwibank. Labour “persuaded” ACC and the New Zealand Super Fund to invest.

Then ACC wanted out. The Super Fund insisted it had to be able to sell their shares to foreigners. The government had to buy them both out.

When I wanted a mortgage on a house on Māori leasehold land Kiwibank said it would not lend on Māori leasehold land. The Aussie trading banks were happy to lend. In my opinion, the taxpayer has received very little benefit from owning Kiwibank.

For an alternative view: Boosting Kiwibank a no-brainer

New Zealand has had many bank failures.

The BNZ has failed multiple times. The 1894 bailout of the BNZ cost 46.5% of the government’s annual revenue representing 6.1% of the country’s GDP.

Every government venture into banking has been a failure.

When I was a finance minister, we discovered all the government-owned banks were insolvent.

Inflation was in double digits. The Post Office Savings Bank paid its mainly low-income customers just 3% and would not lend to them. The bank required a cash injection. Selling to a bank that would treat customers better was a no-brainer.

The Rural Bank was a mess with many bad loans. Selling the Rural Bank to Fletcher Challenge in 1989 was a great deal for the taxpayer but awful for the buyer.

The Development Finance Corporation, DFC, had engaged in reckless high-risk lending. The DFC needed capital. The Japanese who bought the DFC were horrified at what they found. To avoid reputational damage the government made a multi-million settlement.

The BNZ had engaged in risky lending to companies like Equiticorp. It was also insolvent. This time the bailout cost the taxpayer around 2% of the GDP of the country.

The government is hopeless at running a bank.

Banking is a risky business, borrowing short and lending long. During the GFC, the world’s largest bank, the Bank of Scotland, failed. In this country, most of our finance houses collapsed.

New Zealand’s small economy is vulnerable to external economic shocks. Our history tells us that when the owners of a bank are New Zealanders when the bank is in financial difficulty the shareholders are also in trouble and cannot help.

Suggestions that the government should bank with Kiwibank or that school children be encouraged to be depositors would mean any crisis in Kiwibank would have a bigger impact.

The Reserve Bank is correctly demanding all banks increase their capital reserves against the inevitable future banking crisis. The billions of dollars needed for Kiwibank to compete with the much larger Australian banks could be much better spent on our hospitals and infrastructure deficit.

Instead of flicking Kiwibank onto KiwiSaver, the government should recover the $2.1b of taxpayer money earning nothing in Kiwibank. Sell its shares to a non-Australian foreign bank with a strong balance sheet that can compete. There will come a day when there is an Australasian banking crisis, and we will be grateful to have a foreign bank from outside Australasia.

The real cause of the lack of banking competition is government red tape.

When I was small my grandfather, with no fuss, opened a bank account for me.

It took me many trips over three months and many documents to open my grandson’s account.

The regulations are so tough there is an underclass of New Zealanders who are unbanked. You cannot prove where you live when you are homeless. The regulations are completely over the top.

If the government cut banking red tape, the banks would compete. A zero-cost solution.

Bricks-and-mortar banks are the past. Digital-first neo banks that offer only online services, providing faster, 24/7 cost-effective services are the future. Instead of investing in yesterday’s banking, Nicola Wilis should be asking the Treasury and the Reserve Bank to facilitate the coming revolution in banking.

This article has been updated to show The Rural Bank was sold to Fletcher Challenge in 1989 before Fletcher Challenge sold the bank in 1992.