(Bloomberg) -- New Zealand’s government will pursue a capital injection of as much as NZ$500 million ($290 million) for state-owned Kiwibank as it seeks to improve competition in a banking sector dominated by four Australian-owned lenders.
Kiwibank’s parent company, Kiwi Group Capital, and the Treasury Department have been directed to talk to local investors including KiwiSaver pension funds about the investment, Finance Minister Nicola Willis said at a post-cabinet news conference Monday in Wellington. A final decision will be taken by mid-2025, she said.
“The change will enable the New Zealand-owned bank to more vigorously compete against the big four Australian-owned banks,” she said. “New Zealand is often seen as the little brother against the Aussies. We’re trying to give that little brother a little bit more muscle to get a fairer deal for Kiwis.”
Willis has accused the Australian banks of operating an “oligopoly” in New Zealand, with competition between them resembling “a cozy pillow fight.” In a report on the sector released earlier this year, the antitrust Commerce Commission recommended giving Kiwibank more capital to take on the bigger banks.
Willis said today that an additional NZ$500 million of capital for Kiwibank could support up to NZ$4 billion of business lending or NZ$10 billion of home lending, which would be “sufficient to add competitive pressure to the market and potentially benefit customers of other banks as well as Kiwibank.”
Currently, the four major lenders together hold about 90% of deposits. Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. operate under their own brands, while Commonwealth Bank of Australia owns ASB Bank and National Australia Bank Ltd. controls Bank of New Zealand.
In the longer term, the most accessible source of additional capital for Kiwibank is likely to be through a public share offering, Willis said.
“However, Kiwibank will not be ready for this until its current digital transformation is completed – expected by 2028 – so no decision on an initial public offering will be made in this term of government,” she said.
If an initial public offering is not approved at a later date, there could be an option for investors to sell their shares back to the Crown at an independently assessed fair value, she added.
Willis has also issued a new Financial Policy Remit and letter of expectations to the Reserve Bank to emphasize the importance the government places on competition in the banking sector.
The RBNZ will be expected to expand access to the exchange settlement system, review risk weighting for a range of bank lending, review minimum capital thresholds for new entrants to the sector and work with industry to make bank accounts more widely available, she said.
“The big banks are on notice,” Willis said. “The government is explicitly leaving open the possibility of further action if we don’t see enough progress.”
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