Diana Clement: Why you should bank with a Kiwi company

Kiwibank is owned by the NZ Super Fund, ACC and NZ Post.

OPINION:

If you buy New Zealand-made goods, why not bank with local companies as well? While you're at it, shop New Zealand owned and made. New Zealand's Aussie-owned banks send up to $6 billion of profits offshore each year.

I have to admit it's not obvious from their names which banks are New Zealand owned. Banks with names such as Bank of New Zealand, ANZ (Australian and New Zealand Banking Group) and ASB (formerly Auckland Savings Bank) are all Aussie owned. So too is Westpac.

For the record, the locally owned banks are: Kiwibank, SBS Bank, Heartland*, Co-operative Bank and TSB Bank. There are also building societies such as the Heretaunga Building Society and credit unions such as Unity, providing mortgages, loans and banking-like services such as debit cards.

The five New Zealand banks make up just over 8 per cent of the market in New Zealand. They're all a little different, says Mark McLean, chief executive of SBS Bank.

SBS and Co-operative Bank are mutually owned, meaning profits are paid back to customers, and TSB's profits go back to a community trust. There's no point making excess profits from your customers if the money is going back to them, says McLean.

The Aussie banks have economies of scale. On the flip side, says McLean, technology is getting cheaper and more efficient enabling the smaller banks to compete.

The Kiwi banks are keen to point out that for five years plus they've dominated customer satisfaction awards. The Co-operative Bank won Canstar's most recent Banking Satisfaction award followed by SBS Bank, TSB and Kiwibank ahead of the Aussie banks. The Co-operative Bank led TSB in the Consumer bank satisfaction survey. There has to be a reason for that.

McLean says many of his new customers have had a gut full of issues such as the conduct of the banks' parent companies in Australia, and the big profit numbers.

Canstar general manager Jose George says the Aussie banks have had an advantage in terms of flexibility and being able to deal with more complex needs.

The New Zealand banks, George says, have often been regional, although many are now expanding their reach. SBS Bank, for example, has 20 per cent of its customers in Auckland, says McLean

Kiwibank's head of sustainable finance Tom Williams has a point as well. Salaries go to locals. "Kiwibank is run by people you know. Friends, neighbours and whānau."

Credit unions and building societies (CUBs) are owned by their customers like the mutually owned banks and there are no moral hazards if you bank with them, says Rob Collins, secretary of CUBs NZ. "There is no history of members losing capital in CUBS; there is no evidence or claims of misconduct; there is nothing but substantial positive member/customer experience."

One issue that I had to raise with the NZ banks is what would happen if the proverbial hit the fan and they went to the wall. McLean pointed out that since 2008 the Reserve Bank of New Zealand has upped regulation considerably to ensure that neither the Aussie or NZ banks could fail. In particular, a tool called Open Bank Resolution has been set up that would mean a failed bank would be reopened the next day by taking a "haircut" of money from shareholders and if necessary customers. All banks are required to hold more capital in New Zealand than they did prior to the GFC, which makes them more resilient.

The Government has proposed a Deposit Takers Act, which would introduce a new deposit insurance scheme that protects customers up to $100,000 in the event of a failure.

*Heartland is owned by a mixture of investors through its listings on the NZX and ASX (making it not totally Kiwi) and Kiwibank by the NZ Super Fund, ACC and NZ Post.