Government inches towards Kiwibank part-privatisation, asking KiwiSavers, local funds to invest $500m

The Government will ask KiwiSaver funds and local investors to invest up to $500 million in Kiwibank, allowing the bank to grow and become more competitive.

Finance Minister Nicola Willis said competition between the major Australian-owned banks, ANZ, ASB, BNZ, and Westpac, was in fact a “pillow fight” and that the capital injection will put Kiwibank on the road to becoming the competitor envisaged by the Commerce Commission in its recent market study of the personal banking sector.

The commission recommended better capitalising Kiwibank to help it increase competition to the sector. The Australian-owned banks hold around 90% of the assets of all registered banks in New Zealand.

The capital injection, Willis said, would support new business lending of $4 billion or home lending of $10b.

As a first step in improving Kiwibank’s capital levels, Willis directed Kiwibank’s parent company, the wholly Government-owned Kiwi Group Capital, and Treasury to talk to New Zealand KiwiSaver funds, New Zealand investment institutions and New Zealand professional investor groups about a potential investment of up to $500 million in the bank.

“The more capital Kiwibank has, the more it can compete and the greater the likelihood of interest rates coming down for all bank customers,” Willis said.

Willis said the investment was “not an asset sale”, something Prime Minister Christopher Luxon had pledged not to do when he was in Opposition.

“If a private placement occurs, this would be an asset capitalisation, not an asset sale, as all funds raised would be for Kiwibank’s future business growth. There would be no return of capital to the Crown to deploy elsewhere,” Willis said.

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 said that Kiwibank would not be ready for a public offering until the bank’s digital transformation was completed, which is expected in 2028.

“No decision on an initial public offering [IPO] will be made in this term of government,” Willis said.

Willis said that if an IPO was not approved in future, the Government “could” offer investors the option to “sell their shares back to the Crown at an independently assessed fair value”.

The challenge for this plan is that in restricting the organisations that can participate to only New Zealanders, Willis might not be able to get the best value for money, which would come from being agnostic to where the capital was sourced from. Investors might also be nervous that they would face restrictions on selling their investments in the future. This restriction would likely decrease investor appetite.

When faced with this criticism, Willis said the advice received by the Government was that the “best option” over the medium term was through a “broad public offering” and said this would “realise the best price and the best terms of investment in Kiwibank”.

“That option isn’t on the table right now,” Willis said.

“At this junction, there is an opportunity for New Zealand institutional investors to get in early.”

Earlier this year, the Herald spoke to potential investors in Kiwibank.

Salt Funds managing director Matthew Goodson told the Herald he was keen to see Kiwibank floated.

Goodson believed restricting foreign ownership in Kiwibank to, say, 50% would be fine, but 10% or 20% would be tricky. He said that any restrictions or directives given to Kiwbank, such as to lend more to businesses and the rural sector, would likely be reflected in the price.

“You can put any conditions you like on it, but the market will reflect that in the price,” Goodson said.

He was also frank that before investing, he would need to be confident Kiwibank would deliver good returns.

“I’m not sure how keen I’d be for Kiwibank to go wading [further] into business lending,” he said.

“It would be a good thing for the economy, but not such a good thing for me as an investor.”

Luxon would not say whether he would take an IPO to the electorate in 2026.

“We’ve got a long way to go,” Luxon said.

Labour leader Chris Hipkins said he wanted to see more detail. He said an injection of $500m was “a good thing”.

“Where that equity comes from is a really critical piece of the puzzle that the Government haven’t shared any information about,” Hipkins said.

Kiwi Group Capital’s (KGC) chair David McLean said the organisation supported the move.

“This is closely aligned with KGC’s strategic objective to assist Kiwibank to carry out and develop its business. KGC will support the Treasury to undertake the preparatory work required by the Crown to understand what a private placement to suitable New Zealand institutions might look like,” he said.

KiwiBank chief executive Steve Jurkovich said the bank’s “faster-than-market growth shows that we are fulfilling our role as a competitive alternative to the larger banks”.

He said that access to more capital would allow the bank to “grow faster and create even more competition in the banking sector”.

Willis also sent a new letter of expectations to the Reserve Bank. The letter included a handful of measures which might increase bank competition.

The letter said she wanted the bank to expand access to the exchange settlement system with decisions by March 2025, review risk weighting for a range of bank lending, and review minimum capital thresholds for new entrants into the banking sector.

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.