Kiwibank has announced it will cut dishonour fees for failed automatic payments, direct debits and cheques from NZ$30 to NZ$7.50 for personal and business accounts from the start of October. Unarranged overdraft fees will be reduced from NZ$15 to NZ$10 per month and honour fees will be removed entirely, Kiwibank said.

In a move that follows previous announcements by Westpac and BNZ, Kiwibank said these cuts would reduce the bank's revenue by about NZ$18 million a year.

In the year to June 30 2009, Kiwibank made NZ$89.1 million from banking and lending fee income, according to the bank's latest general disclosure statement. This represented 28.5% of its total operating income during the year.

"We do believe a small fee should apply to cover bank costs and to encourage customers to ensure they meet contracted payment obligations to other parties and companies. However it has become clear that the level of the fees has been causing financial stress for customers on limited incomes and, in line with market changes, we are reducing our charges," Kiwibank Acting CEO Nick Astwick said.

Astwick said the fees charged for failed payments would revert to the charges originally set by Kiwibank when it was launched in 2002.