Willis looking for ways to boost Kiwibank capital

Finance Minister Nicola Willis is open to exploring ways of ensuring Kiwibank gets the capital it needs to better compete with the big four Australian-owned banks.

“The question is: ‘How could we better capitalise Kiwibank?’ That’s a question I’m prepared to consider,” Willis said.

Her comment followed the Commerce Commission recommending the Government, which owns Kiwibank, increase its access to capital.

“We see this as the best near-term prospect for more robust competition,” the commission said in a draft report.

The report was prepared as part of a study the previous Government commissioned into competition in the banking sector.

The commission didn’t reveal whether it believed the Government should give Kiwibank another capital injection or bring in capital from a third party, which would likely see it lose some control of the bank.

Willis admitted she’d only had a chance to read the executive summary of the commission’s report when the Herald spoke to her shortly after it was published on Thursday.

“My reaction to that was that I immediately contacted Treasury and said, ‘I would like some advice on what our options are because I’m open to the prospect of reform’,” she said.

Willis was also open to considering other competition-enhancing changes beyond Kiwibank.

Many of the Commerce Commission’s recommendations relate to the way banks are regulated by their prudential regulator — the Reserve Bank.

The commission suggested the Reserve Bank reviews the amount of capital it requires banks to hold, saying the current settings give the major banks “a material and entrenched competitive advantage over Kiwibank and smaller providers”.

Reserve Bank deputy governor Christian Hawkesby told the Herald it would review the commission’s report before deciding how to respond. But at this stage, it had no plans to change the way it was requiring banks to increase capital holdings.

“We completed our multi-year review of bank capital adequacy rules in 2019, with implementation gradually taking place up until 2028,” he said.

“Our policies are designed to protect and promote the stability of New Zealand’s financial system by addressing prudential risks, while also considering competition, compliance cost, and the diversity of the deposit taking sector.

“We aim to ensure we apply a proportionate approach to designing rules for deposit takers, and do not adopt a one-size-fits-all approach.”

The commission believed the Reserve Bank could tweak the bank capital rules in a way that didn’t compromise financial stability.

It was also worried a new deposit compensation scheme that becomes operational mid-next year could disadvantage small banks, as they’d likely have to pay proportionately higher levies into the scheme to compensate for them being at greater risk of failing than the big banks.

Hawkesby again assured the RBNZ took a proportionate approach and was considering feedback from the industry as it designed the scheme.

Another commission recommendation was for the Government to require banks to ensure open banking is operational by mid-2026.

Commerce and Consumer Affairs Minister Andrew Bayly said he was in the process of seeking Cabinet approval to introduce a consumer data rights bill, which would help create a framework for open banking.