Kiwibank to get private capital
Nicola Willis announced:
Kiwibank has been given the green light to compete more vigorously with the big four Australian-owned banks that dominate the New Zealand banking sector.
Finance Minister Nicola Willis announced today that, following a market testing process, Cabinet had approved Kiwibank’s parent company raising up to $500 million of capital to fund the bank’s growth.
“Allowing Kiwibank to raise up to an additional $500 million is the first step towards giving Kiwibank access to the capital it needs to truly compete with the big four Aussie banks while retaining its intrinsic New Zealand identity.
“The Commerce Commission reported last year that New Zealand’s four largest banks did not face strong competition when providing personal banking services.
“Advice to the Government is that an additional $500 million of capital could support up to $4 billion of business lending or $10 billion of home lending.
This is a smart move, for a number of reasons.
- Having private capital in Kiwibank will be beneficial with those shareholders being able to push for greater commercial discipline
- Kiwibank is too small to compete effectively with the larger banks. Access to more capital means they should be able to increase their market share
- By using private capital, the government doesn’t ned to borrow money. I would rather the Government put $500 million into hospitals and schools, than a commercial bank – as should any sane person.
It is important to note this is not an asset sale where the Government is selling some of its shares, and receiving money for them. It is the company (with government permission) doing a capital raise. The money from that goes to Kiwibank, not the Crown, allowing them to expand. It will mean that a percentage of Kiwibank will be privately owned (I estimate around 20% to 25% based on Kiwibank net equity of $2.24b) but the Government has committed to keeping a majority stake.