Greens pledge to re-energise Kiwibank as a competitive force to save New Zealanders money & ultimately build it into 'a sophisticated retail and commercial bank'

The Green Party says if in government it would tip $100 million of taxpayers' money into Kiwibank to help the state owned bank better compete with New Zealand's Australian owned banks.

The Party also wants to make a change in Kiwibank's Statement of Corporate Intent, repurposing the bank for the public good saying its purpose has become indistinguishable from the goals of a private enterprise.

"The Green Party want to build Kiwibank into a sophisticated retail and commercial bank, with the scale needed to be a market leader, and to ultimately manage the biggest bank accounts in the country - the Government’s (Westpac currently holds the key government banking contract). Across the entire country, this will save New Zealand households and businesses hundreds of millions of dollars each and every year," the Greens say.

Greens co-leader James Shaw says the move would achieve "better" bank interest rates, and speed Kiwibank's expansion into commercial banking. The Party would also allow Kiwibank, which paid $46 million in dividends last year, to keep more of its profits to fund growth. Shaw says an aim is to give Kiwibank a clear public purpose to lead the market in passing on interest rate cuts.

“The Government has limited Kiwibank’s ability to scale up and compete, leaving the big foreign banks free to make unnecessarily large profits off Kiwis, rather than pass on recent interest rate cuts to us all,” says Shaw.

“New Zealanders could be getting better interest rates no matter who they bank with if Kiwibank was allowed to properly compete with the big four Australian banks."

“Under our plan, a first home buyer in Auckland with a $500,000 mortgage could save $690 per year, meaning they pay off their mortgage earlier. Across the entire economy, these mortgage savings alone translate into savings of $312 million per year. That’s a massive saving for NZ Inc," Shaw says.

In their full policy document the Greens note when the Reserve Bank recently cut the Official Cash Rate (OCR) by 25 basis points, three of the big four banks (ANZ, BNZ and Westpac) passed on only 10 basis points of those cuts to floating rate mortgage borrowers. Kiwibank passed on 20 basis points.

"The banks behaved similarly during the Global Financial Crisis, failing to pass on the full extent of OCR cuts to businesses and households. The high profitability and moves to increase margins during a severe recession highlights a lack of real competition in our banking sector. The Government has a market mechanism to promote competition in the banking sector in New Zealand; it’s called Kiwibank."

"Promoting greater competition in the banking sector is a better option than talking to the banks (National) or threatening legislation (Labour) to force banks to pass on interest rate savings to borrowers," the Greens say, describing the Australian owned banks' profits as "the single biggest capital drain in our economy."

They also note  ANZ, ASB, BNZ and Westpac, combined, control 87% of New Zealand’s banking industry, a scenario credit ratings agency Standard & Poor's recently described as "oligopolistic."

“Our plan will help Kiwibank lead a change in New Zealand banking, by giving it a clear public purpose that requires it to drive competition to generate better interest rates for New Zealanders,” says Shaw.

“Strengthening Kiwibank so it can create competition in the banking sector is the smartest way to ensure all banks pass on the best interest rates to Kiwis.”

The Greens say Kiwibank’s shareholding ministers, the Minister of Finance and State Owned Enterprises, can explicitly direct Kiwibank to retain and reinvest more of its profits, aggressively expand its commercial banking operations, and lead the market in passing on interest rate cuts.

"The National Government treats Kiwibank primarily as a source of revenue, above any other public good considerations. National have consistently refused to invest more capital into Kiwibank to help it take the next important step - to become a sophisticated commercial bank to compete away excess margins in the business lending sector. After 14 years, Kiwibank is still too small to be the banker of its parent company, New Zealand Post."

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Do the Greens want to require Kiwibank to have a lower margin between mortgage rates and deposit rates than the other banks? Or do they just want the profits of the business not to go overseas? (More of the same).
Or partly one, partly the other?

I find it hard to form a view on Kiwibank. On one hand it's a plucky little startup, which challenges the big Aussie Banks, with huge benefit to New Zealanders. Or. It's growing into being one of the Cartel members, and thus little use to us at all. So which ?
I would prefer it to be New Zealander owned rather than Government owned. But it is owned in New Zealand which is still a plus.

It needs to be NZ owned but as you say, there is a risk, as it grows larger, that it will become a cartel member. It needs to remember its roots and why it was formed and keep this front of mind.

It seems like the Greens want the bank to take on more risk. That doesn't seem very responsible. Driving competition by running the bank into the ground isn't a good option either, that's a mechanism for business failure.

Astounding- That even greenies should be so stupid. Their proposal is exactly the style of political intervention that undid yankee Freddie and Fannie.

Ruminating on this, 'tis no worse of the greenies than the Walpolean Nat's crooked dealings over things like gambling and water. And the greenies, albeit perpetually misguided, have good intentions - no defence for this government.

A look at the borrowing page of this website reveals that Kiwibank already have market leading mortgage rates across most terms.

It's really up to NZder's to either make KB larger or not. They in the end decide where to put their money and take out mortgages. For the life of me I can't believe NZders still use for example.....Westpac or ANZ.

The big banks offer better deals once the haggling starts. I am all for keeping a piece of the $4 billion plus banking profit in NZ but not when Kiwibank cannot match the deals offered by the big four.

Yeah but if more had their deposits with KB then they could offer better deals. The Aussie banks have New York owners!

This kind of comment from the Greens is naive at best. Kiwibank will need at least that kind of money to build the infrastructure to get anywhere near what the "big four" banks have already and have had for a very long time. Heres an idea for the Greens, why not go and do some research on what makes the big four "tick", have a really good look at the IT infrastucture for a start and then have a look at what it actually means to be a "sophisticated commercial bank" as in international capabilities.

The infrastructure is the least of their issues, the IT can be scaled. The real issue is that in order for kiwibank to offer cheaper alternatives it has to cut its profits to the bone which means it has no funds to grow. This means to me that the Govn is going to have to throw 100s of millions at it to fund it and keep doing so, all to help the FHB into a massively over-priced asset in a bubble and save a few %.

Its plain mad IMHO.

I am sure there is a happy median between running at a loss and taking a piece of the $6.8 billion the big four make a year in profit (how about Kiwibank undercut the big four and aim for $3.4 billion in profit?...).

I know everyone here loves talking about the bubble but in the meantime NZ is bleeding money to Oz.

I think most rational people would agree with you steven in that Kiwibank would need serious millions thrown at it. I actually think Kiwibank is a great idea but I'm tired of the useless rhetoric we get from the Greens or Labour in regards to the banking sector among other things. This of course begs the question when are we actually going to get a robust and intelligent opposition party in this country because at the moment we dont have one which is not good for any of us no matter what your political persausion might be.

Just as I see the situation Nitro. I remember in the old days......:-)

Sometimes, oppositions grow into decent governments,but we have to give them the opportunity by voting for them. For the health of our somewhat fragile democracy, we should boot this lot out and let the chips fall as they will..
Personally,I will be delighted to see the back of J Key.
As for Kiwibank,I agree that more of us need to use it.