Treasury thinks an IPO is an option for growing the bank.
Finance Minister Nicola Willis has received early advice on how to better capitalise Kiwibank in order that it might better compete with the large Australian-owned banks.
The advice is in response to the Commerce Commission market study on personal banking which suggested looking at ways to better capitalise Kiwibank so that it might become a “maverick” disruptor of what the commission called an “oligopoly” of large Australian-owned banks.
Documents, released under the Official Information Act to the Green Party, show Treasury is keen to look at exploring the use of private capital, including an Initial Public Offering of the bank as a way of securing this capital.
The Government has said it has no plan to privatise the bank. Prime Minister Christopher Luxon told Parliament this week the Government had “no plans to do any asset sales”. Representatives from the Government have been approached for comment.
But Green Party finance spokeswoman Chlöe Swarbrick believes the Government is heading in the direction of privatisations.
“I am very concerned that that seems to be the direction of travel here,” Swarbrick told the Herald, citing the fact that Willis had agreed to a Treasury recommendation to consider private capital as part of any capitalisation strategy for Kiwis.
Treasury’s advice was mostly supportive of the idea saying that while there was “no single fix to improve competition ... smaller banks’ access to capital is one of the key constraints affecting the ability of small providers and Kiwibank to grow and compete”.
Treasury reckoned that Kiwibank “appears to be the only bank that will be well positioned to be able to scale up within a few years, see its operating cost ratios benefit from that scaling and more actively compete with the four largest banks in its chosen markets”.
Treasury warned of some challenges to Crown ownership of the bank as it grew.
“As Kiwibank grows it will become more important to the overall financial system – just as the big four banks are currently.
“This presents both a risk and a potential benefit. It is a risk that the Crown is both the owner of the regulator and a systemically important bank – a matter that would likely be increasingly complex in difficult business conditions or a divergence of interests between banker and regulator.
“However, it also represents a benefit in that for so long as Kiwibank remains well managed, it could be able to continue lending to its chosen sectors throughout the business cycle,” Treasury’s advice said.
Treasury considered three ways of injecting additional capital into Kiwibank, it could come from the Crown directly, via a third-party investor, or by an initial public offering.
The advice warned that injecting further Crown money into Kiwibank would mean borrowing more money and lifting net debt levels or “displacing other Crown-funded priority policies” by deciding to invest capital in the bank rather than things like schools and hospitals.
An option could be to allow one of the Government’s investment entities like the Super Fund or ACC to own a stake in the bank – although this has already been tried and both entities eventually sold their stakes back to the Government.
Treasury was most positive about an Initial Public Offering, which would mean selling some shares in the bank. This does not mean selling the whole bank, as some ownership – potentially a majority stake - could be retained.
“For a bank which has New Zealand ownership as its point of difference, the natural progression for Kiwibank in raising capital in the medium term is through an IPO.
“This would offer a broader ownership directly than would private capital raising and would remove some of the challenges that arise for illiquid investments (higher return on investment required by investors, greater involvement in governance, more complicated exit provisions etc.),” Treasury’s advice said.
Emails included in the OIA request reveal that potentially growing the bank with private capital was considered when the last Labour Government bought the bank under its full ownership in 2022 by purchasing ACC and the NZ Super Fund’s stakes.
Treasury noted that back then, the bank was established as a “Schedule 4A company” adding that this meant “the Crown does not need to be the sole provider of Kiwibank’s growth capital”.
In notes back to Treasury, Willis asked, “was this scenario envisaged at the time of set-up?”
Treasury responded that “yes” the last Government had included this in its consideration.
“[T]he then Government approved the establishment of Kiwi Group Capital as a Schedule 4A company holding the Crown’s interest in Kiwibank and The New Zealand Home Loan Company in recognition that the Crown need not be the sole capital provider to support Kiwibank’s future growth.
“This was specifically recognised in [Kiwibank owner] Kiwi Group Capital’s Statement of Intent ... which states that KGC’s objectives for Kiwibank include for it to be 100% Kiwi-owned and majority Crown-owned,” Treasury said.
Swarbrick told the Herald that privatisation would simply mean a continuation of the status quo, citing the experience of the part-privatisation of the Government-owned gentailers.
“There is a reason Kiwibank has been set up as it was. Why would we not supercharge that and keep it in public ownership?” she said.
One idea that has been floated in the past is to find a way to capitalise Kiwibank using people’s KiwiSaver savings. Swarbrick would not discuss that idea saying her party would “shortly” have more to say about how it thinks the bank could be better capitalised.
Labour’s finance spokeswoman Barbara Edmonds said that Kiwibank was “always intended to be a disruptor to foreign-owned banks”.
“I’m of the firm view that Kiwibank should remain in Kiwis’ hands. As long as it remains in Kiwi hands and still maintains its purpose as a disruptor to the large foreign-owned banks, I’ll remain open-minded as we work through our own party process and also consider what the Government proposes when the time comes,” she said.
Thomas Coughlan is deputy political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the Press Gallery since 2018.
Expectations tempered around return to surplus in 2027/28.