Kiwibank has a public policy wind behind it as it sails into business banking

Kiwibank's drive into the business lending market has the hefty hand of the Government behind it.

Announcing results for the June year last week, CEO Steve Jurkovich described business banking as "a standout."

Plugging the Reserve Bank's Bank Financial Strength Dashboard June quarter data update into Interest.co.nz's Key Bank Metrics tool adds numbers to the story.

Kiwibank's business loan portfolio grew by 13.5%, or $666 million, over the last 12 months.

That put it a shade behind Westpac's $671 million of growth, but ahead of ASB ($638 million) and BNZ ($380 million). ANZ's business loans shrank by $412 million.

What's worth noting there is that Kiwibank is a minnow among the Big Four leviathans.

Its standout growth took the size of its business lending book to just $5.59 billion, little more than a sixth of BNZ's $29.76 billion. ASB, ANZ, and Westpac came in at $22.51 billion, $25.38 billion, and $20.00 billion respectively.

"Strengthening Kiwibank" has been an express aim of the "Growth Government" for over a year. It's pulling every lever it can to blow wind into Kiwibank's sails, short of pumping in taxpayer dollars.

Under considerable political pressure, the Reserve Bank (RBNZ) this week proposed (subject to public consultation) to loosen banks' capital settings.

Having to hold less capital to back loans would be a boon to all banks but, as Fitch Ratings notes, it's the RBNZ's changes to risk weightings that will benefit the smaller banks in particular.

"The changes primarily involve reducing risk-weight requirements for residential mortgages and agriculture exposures with lower loan-to-value ratios, while also creating SME retail and corporate categories, and should result in higher CET1 (common equity or ordinary shares) ratios for the smaller New Zealand banks upon implementation," Fitch said.

Shortly before the RBNZ's capital announcement, Parliament's Finance and Expenditure Select Committee released the report from its year-long inquiry into banking competition.

The report focused heavily on business and rural lending, taking up the theme that the RBNZ's current capital ratio requirements, let alone scheduled increases, were stifling competition and economic growth.

The Government's message was again clear; it wants banks backing the productive sectors of the economy, not just pushing mortgages.

Approving Kiwibank's plan to seek $500 million of capital from New Zealand institutional investors, Finance Minister Nicola Willis said she had been advised that sum could support up to $4 billion of business lending or $10 billion of home lending.

Neither one would bring it anywhere near the market share of even the smallest Big Four competitor - BNZ in mortgages, with $63.13 billion compared with Kiwibank's $29.47 billion; or Westpac's $20 billion of business loans.

But the Government clearly hopes it will give Kiwibank the scale to get serious in a market in which competition, to use Willis' words, has been "a cosy pillow fight."

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