RBNZ mulling action against Kiwibank

Kiwibank breaches RBNZ bank registration rule

29th Aug 13, 4:48pm by Gareth Vaughan

By Gareth Vaughan

Kiwibank says it has been in breach of one of the conditions of its bank registration for more than two months and the Reserve Bank is considering taking action.

Kiwibank's latest General Disclosure Statement, out yesterday, notes since the resignation of Grant Paterson as a director on June 18 due to poor health, it hasn't complied with the condition that requires at least half its board to be independent of parent NZ Post.

"This non-compliance will be rectified with the appointment of a new independent director, a process for which is underway," Kiwibank says.

However it also notes that: "The Reserve Bank were notified immediately and are considering whether they will take any action against the Bank."

Under the Reserve Bank of New Zealand Act 1989, a fine of up to $1 million for non-compliance with registration conditions is possible. A Reserve Bank spokeswoman declined to comment on the Kiwibank case.

A Kiwibank spokesman told interest.co.nz the bank hoped to finalise the appointment of a new independent director shortly. He said given all appointments are subject to Reserve Bank checks and the regulator confirming it has no objection, it’s not possible to make a temporary appointment.

"The Reserve Bank has been kept fully informed throughout and understands why the situation has arisen. At this stage, the Reserve Bank has not indicated whether it considers it necessary to take any action in relation to the technical breach of our conditions of registration that has occurred," the Kiwibank spokesman added.

Finance companies prosecuted

Over recent months the Reserve Bank has prosecuted two finance companies for not having the two independent directors required of them under their non-bank deposit taker regulations.

In the first case Avanti Finance pleaded guilty and was fined $15,000 by Judge Emma Aitken in the Auckland District Court and ordered to pay costs of $132.89.

In the second case Broadlands Finance has also pleaded guilty. Broadlands faces a fine of up to $35,000. The maximum potential penalty for the finance companies was also a $1 million fine.

Kiwibank's board includes chairman Rob Morrison, plus fellow independent directors Alison Gerry, the former Lion Nathan treasurer, and Catherine Savage who is ex-managing director of AMP Capital Investors.

Other directors are former Finance Minister Michael Cullen who is chairman of NZ Post, NZ Post CEO Brian Roche, plus Murray Gribben and David Willis, who are both also NZ Post directors.

Announcing Avanti's fine last December Reserve Bank Deputy Governor Grant Spencer said sound governance was a key aspect of the non-bank deposit taking regulatory regime.

"The requirement to have two independent directors is pivotal in strengthening this sector and avoiding the issues experienced by some finance companies in recent years. As a result, it is important that non-bank deposit takers are aware of their directors’ interests, to ensure they meet the Reserve Bank requirements to have two independent directors on their boards," said Spencer.

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8 Comments

by Stephen Hulme | 29th Aug 13, 6:19pm 1377757178

"The requirement to have two independent directors is pivotal in strengthening this sector and avoiding the issues experienced by some finance companies in recent years. As a result, it is important that non-bank deposit takers are aware of their directors’ interests, to ensure they meet the Reserve Bank requirements to have two independent directors on their boards," said Spencer.

It's about time the RBNZ got it's act together so we don't continue to get lumped in with the worst examples of countries likely to face international financing difficulties. Read more

S&P recently had this to say:

Meanwhile, S&P also noted that whilst New Zealand's government finances aren't strained, private-sector balance sheets - especially in the banking system - carry a high level of external liabilities.

The economy’s external debt overall, net of official reserves and financial sector external assets, amounts to an estimated 260% of current account receipts in 2013. S&P says this ratio is among the highest among all the sovereigns it rates.

The credit rating agency forecasts New Zealand's current account deficits will widen to about 6% of GDP by 2015, from almost 5% in 2012, reflecting a weakening trade balance and increasing income deficit.

"Downward pressure on the New Zealand ratings could emerge if New Zealand's external position deteriorates materially. On the other hand, upward pressure on the ratings could eventually emerge if stronger export performance and higher public savings markedly reduced external debt," Michaels said.

by Roger Witherspoon | 29th Aug 13, 7:08pm 1377760080

We appear to be in the middle stages of a worldwide credit crisis. These things seem to unfold slowly at first but then gather speed as first one country has a currency collapse (eg India) and then others follow suit (Aus, Brazil). A currency collapse seems to me to be the same process as a bank run. Do you have any good references for how these things work?

New Zealand seems to have got off lightly so far. It seems these are worldwide events due to money flowing out from the US and causing capital mis-allocation throughout the peripheral economies (eg house prices double in Riwaka); followed by money flowing rapidly back to the US causing asset price and currency collapses. It all seems very familiar but someone must have some useful insights into the mechanics of it. The news flow seems to confuse the matter because it is a process spread over time that appears to give rise to "no one saw it coming" events. "No one saw it coming" being merely the excuse of those who did not see it coming and yet should have.

by Stephen Hulme | 29th Aug 13, 7:22pm 1377760928

"No one saw it coming" being merely the excuse of those who did not see it coming and yet should have.

Or paid enough not to see?

by Roelof | 29th Aug 13, 7:37pm 1377761838

For the last 14 yrs India M3 money supply has been growing in a range of 10 to 25% per yr...

A currency collapse is not so surprising.....

I wouldn't put NZ or austrailia in that extreme category... if Capital should exit NZ I don't think the NZ dollar would crash and burn like the rupee..

Just finished reading a book about Keynes... It says he was against fully floating exchange rate systems... for the reasons that Roger describes.

ie. Mercenary Global Capital flows can wreak havoc on smaller economies..

by Stephen Hulme | 29th Aug 13, 8:39pm 1377765543

Perceptions count. Never more so, when queuing to borrow other's money - NZ banks lend ~140% of domestic deposits, the foreign component is sought mainly from US lenders - when an economist from one of the four major US banks places NZ amongst those highlighted our credit score is automatically blighted.

by Roger Witherspoon | 30th Aug 13, 8:58am 1377809893

Thanks for that, two articles I missed. Ambrose is in good form I see http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10272…

by Christov | 30th Aug 13, 8:56am 1377809769

Well after last nights announcement the RBNZ should dismiss any thoughts of taking action against Kiwibank for it's breech of regulation....as it it clear , under the reinterpretation of the law as applied in the case of the GCSB.

There appears or appeared to be no intent on the part of Kiwibank to decieve or act in a manner with the intention of breeching the regulation.

I would now advise every citizen in breech of parking fines to misadventure with other peoples money, to proceed to court and argue the absence of intent in your misdemeanor / majormeany.

Of course the court will tell you as it was never tested in a court , therefore technically there was no ruling in law to cite as reference.

The case against the GCSB was clearly knobbled, and clearly with intent on the part of the Govt....to ensure intent could not be tested in law...

I know for a fact , the police assigned to compile the case against the GCSB have worked very hard , long hours ,and away from their families, and must now feel their superiors , right up to Collins have just gut kicked their efforts.

And you...Key , Collins, etc...want us to respect the law...!??

It is less likely now more than ever, thanks to your willingness to apply it as you see fit.

by kane02 | 31st Aug 13, 5:25pm 1377926701

Why mull it? They are in breach so prosecute. They did this with Avanti etc. who by comparative are minnows. It appears that they are either inconsistent or prefer to go after soft targets.