Rival profits reveal ‘failure’ of Kiwibank
Record profits from Australianowned banks are being cited as proof that Kiwibank has failed in its brief to provide more competition in the banking sector.
When it launched in 2002 Kiwibank was heralded as a beacon of hope that would put an end to soaring bank profits being siphoned overseas.
But 16 years later, the four big Australian-owned banks are making more money than ever before for their overseas shareholders.
In the past week ANZ, Westpac and Bank of New Zealand reported combined after-tax profits of $4 billion. ANZ alone made a record $1.99b in New Zealand in the past year.
By comparison, in August, Kiwibank reported an annual profit of $122 million, up from $58m in 2017. Kiwibank’s record profit in 2016 of $124m is only 6 per cent of ANZ’s recent profit.
Sam Stubbs, the managing director of KiwiSaver fund Simplicity, said Kiwibank was a lost opportunity that had cost New Zealanders billions.
The concept of a ‘‘people’s bank’’ for New Zealanders was the brainchild of then Deputy Prime Minister Jim Anderton. Anderton, who died in January, said in 2000 that record bank profits combined with rapidly rising bank fees created an urgent need for Kiwibank.
‘‘The existence of the Kiwi bank will bring pressure to bear for lower fees and improved services at other banks too, since they will have to compete with the Kiwi bank.’’
Stubbs said the opposite had happened. ‘‘Kiwibank has failed to break into the big league.’’
Simplicity is both a customer of Kiwibank and a competitor in fund management and KiwiSaver.
Kiwibank was a ‘‘wonderfully conceived but poorly executed idea’’, with only 7 per cent of the mortgage market to its name, Stubbs said.
‘‘It’s a minnow, yet it’s supposed to be the national champion. It’s given the Australians the freedom to maximise their profits in New Zealand under the guise of having to compete with a state-owned bank.
‘‘They get to say to the Government and regulators it’s a fair fight, while in reality Kiwibank is a onearmed boxer who’s been thrown into the ring with four heavyweights.
‘‘Had Kiwibank not existed, my bet is that Aussie bank profits would have been far more constrained by regulation.’’
The main reason Kiwibank had failed to rein in Australian bank profits was under-resourcing by consecutive governments, he said.
In 2016 New Zealand Post agreed to sell 47 per cent of Kiwibank to the New Zealand Superannuation Fund and ACC, with the Government retaining majority control.
Stubbs said that stopped Kiwibank achieving its potential because the Government continued to keep the purse strings tight.
The Government should ‘‘set Kiwibank free’’ by either listing it on the NZX or allowing majority ownership by NZ Super and ACC, he said.
Before its launch, David Tripe, head of Massey University’s school of economics and finance, gave the bank a 50 per cent chance of success.
He did not want to offer a view on whether Kiwibank had ‘‘failed’’. ‘‘You could say if Kiwibank had more capital it could compete more effectively.’’
But Cameron Bagrie, former ANZ economist and now operating independently, said it was still early days for Kiwibank.
‘‘They have grown their balance sheet to now be a systemically important bank. They’re getting a reasonable share of the wallet. Have they had challenges along the way? Hell, yes.’’
That had included trying to build market share in the top end of the economic cycle before the global financial crisis, he said. ‘‘I don’t think the benchmark should be whether they’ve driven bank profits down.’’
Long-term investment from ACC and the NZ Super Fund would help, he said.
Kiwibank chief executive Steve Jurkovich was unavailable for comment.