The Kiwibank experiment continues after 17 years
In April 2001, deputy prime minister at the time Jim Anderton proudly set out the financial policy that would define his legacy.
Anderton laid out plans for a ‘‘Kiwi bank’’ that would give New Zealanders a more visible banking presence, with enough local branches for customers and ‘‘better service’’ than the ‘‘large overseas’’ lenders.
During his speech, Anderton said borrowers were fed up with increasing fees, branch closures, and staff ‘‘being laid off in their thousands’’. The new state-owned bank, Anderton promised, signalled a ‘‘new direction’’.
Kiwibank was officially up and running a year later.
But has it achieved what it set out to do?
Anderton’s policy cemented a domestic bank at the heart of New Zealand’s banking industry, backed and controlled by the Government. Today, Kiwibank is still only the fifth-largest bank in the country, trailing behind the Australian-owned big four, under the ownership of state shareholders New Zealand Post, New Zealand Super Fund, and ACC.
Kiwibank was set up to deliver a social good and act as a viable domestic alternative to the Australian-owned giants – ANZ, ASB, BNZ, and Westpac. But critics argue the national lender has failed to dent the dominance of the big four.
The Australian lenders still have 86.4 per cent of total assets in the New Zealand banking sector, with Kiwibank holding a 4.1 per cent share, according to the Banking Ombudsman Scheme’s latest annual report.
It hasn’t done anything to stop the Australians’ run of big profits, either. The big four have posted record annual profits in recent years. New Zealand banks raked in $5.77 billion in profit after tax last year, with the four main banks accounting for most of that increase, according to KPMG.
Kiwibank must contend with the commercial reality of running a profitable bank and trying to maintain its status as a national champion.
Kiwibank’s recent results have underwhelmed. The bank posted a profit after tax of $108 million in the year to June 30, a 6 per cent drop on the year before.
The lender has also come under fire over the past year for scaling down its branch network as it separates retail operations from NZ Post, which is shutting its post shops.
The branch closures have sparked anger in provincial communities. Kiwibank says changing consumer habits and smartphone banking mean fewer branches are needed.
Back in 2001, Anderton envisioned Kiwibank would deliver ‘‘better service at a lower cost’’ than its rivals. As Kiwibank struggles to placate anger about branch closures, consumer bodies say it at least delivers solid scores on customer service.
According to Consumer NZ, Kiwibank has a customer satisfaction rating of 66 per cent, higher than the big four but lower than domestic rivals The Co-operative Bank and TSB.
However, the Banking Ombudsman Scheme received 474 complaints about Kiwibank in the past year, more than larger banks ASB and BNZ.
Steve Jurkovich, chief executive of Kiwibank, says the lender is always mindful of its founding principles. He points to the bank’s growing mortgage book as evidence of its support for the economy. ‘‘The essence of the founding vision, to create a credible alternative to much larger Australian competitors, is as real today as ever,’’ Jurkovich says.
‘‘The reason we exist, to help Kiwis to be better off, is absolutely as relevant as it always was.’’
He acknowledges the frustration about branch closures and says the bank is adjusting to changes at NZ Post, as well as changing consumer habits and the rise of technology.
‘‘The world has moved on from 17 years ago. We have to adjust and adapt to be relevant and credible and do the right thing by Kiwis. Being owned by all New Zealanders, people have deeplyheld views of what Kiwibank should be. They think about us being co-located in post shops but many now see it as an icon on their phone,’’ Jurkovich says.
While Kiwibank remains optimistic about taking a bigger slice of the market, it lags behind rivals in key areas like small business banking.
The Reserve Bank’s new capital guidelines for lenders could hinder its growth. Kiwibank has warned the new rules, which will force banks to hold more capital aside, could be more favourable to the market leaders. Market analysts say Kiwibank has made an impact on the New Zealand banking landscape but say the pace of change will continue to be gradual. They doubt whether the bank has the firepower to materially challenge the big four.