People's Bank suffers '$20m shortfall'

By FRANCESCA MOLD

The People's Bank will need at least $100 million - $20 million more than the amount of taxpayer money put aside, say Government papers.

In April, the Coalition released a pile of documents relating to New Zealand Post's community banking plan.

But some parts were deleted to protect commercial confidentiality and the frank exchange of advice between officials and ministers.

Act MP Rodney Hide yesterday released uncensored copies of the reports showing that the external assessors of the project, Cameron and Co, believed at least $100 million was needed for the bank to have adequate financial flexibility.

The Treasury reports expressed concern that the project would be of "negative value", which meant it would not recover the cost of its capital and would find it hard to attract enough customers to succeed.

Mr Hide said the documents showed the Government was irresponsible in putting 80 million taxpayer dollars towards the bank.

Finance Minister Michael Cullen could not be contacted for comment.

The documents also identified the kind of customers the bank would target.

They were customers interested in simple transactions and "money managers", typically families or superannuitants.

During a review of its banking proposal, NZ Post altered its prediction of the number of people it believed would switch to the People's Bank.

It reduced the initial estimate that 179,000 basic transaction customers would switch within three years to 135,000.

It also included two new categories - superannuitants and those with high balances - as making up 16,000 new customers.

However, in the reports officials expressed concern that those two categories were most unlikely to consider switching.

The documents also question NZ Post's assumption that existing banks would not respond aggressively to its pitch for customers.

An aide memoire prepared for Dr Cullen and State Owned Enterprises Minister Mark Burton in January detailed officials' concern that the likely return from the bank did not justify its "inherent high risk".

The proposal offered negligible public policy benefits because its fees would be only $22 cheaper each year than its nearest competitor, the ASB.

The proposed bank would also not materially increase access to banking services because only nine of the 250 outlets would be in areas without nearby banks.

The Treasury has hired an independent investigator to find the source of the documents leaked to Mr Hide.