The New Zealand government has announced a series of measures aimed at boosting competition in the banking sector, including providing Kiwibank with increased capital.

Prime Minister Christopher Luxon stated that the government intends to implement all 14 recommendations put forward by the Commerce Commission in its report on the banking sector in August. The report concluded that the banking sector lacked competitiveness and did not adequately serve New Zealanders.

“It means there was little strategic differentiation, and growth targets that focus on maintaining market share and protecting margins and profitability,” Luxon said. “This means there is limited investment in innovation, muted competition between the banks, and poor service for some demographic groups, and frankly, that is not good enough.”

Kiwibank Capital Injection

Finance Minister Nicola Willis confirmed that Kiwibank’s parent company, Kiwi Group Capital, has been directed to engage in discussions with the Treasury regarding a potential investment of up to $500 million from domestically based KiwiSaver funds, investment institutions, and professional investor groups.

This investment would take the form of asset capitalisation, not an asset sale. “As all funds raised would be for Kiwibank’s future business growth,” Willis explained.

“I want to see banks fighting tooth and nail for Kiwi customers,” Luxon said. “And this is the first step in achieving that vision.”

No Government Sell-Down Planned

Willis clarified that the government is not considering selling any of its Kiwibank shares and that no public share offering would be made by the government until after the next election, if at all.

“I’ve been advised that Kiwibank would not be in a position to consider the possibility of a public offering until it has completed its current digital transformation project which is not scheduled for completion until 2028,” she said.

She added that institutional investors would likely want an exit option, which could take the form of investors having the option of selling shares back to the Crown “at an independently assessed, fair value.”

Other Banking Reforms

Luxon stated that the other recommendations were focused on three broad categories:

• Accelerating development of open banking
• Removing regulatory barriers for entering the market
• Expanding and putting more power in the hands of customers

Willis elaborated on her expectations for the Reserve Bank, outlining her revised financial policy remit and a letter of expectations emphasizing the importance of banking competition.

These documents outline her expectations for the central bank to prioritize:

• Expanding access to the exchange settlement system with decisions by March 2025
• Reviewing risk weighting for a range of bank lending
• Reviewing minimum capital thresholds for new entrants into the banking sector
• Reviewing restrictions on the use of the word “bank”
• Dismantling barriers to lending for housing on Māori freehold land; and
• Working with industry to make bank accounts more widely available.

Willis concluded with a strong message to the banking sector: “Our message to the banks is this: the time to act is now. If you drag your heels, the government is leaving open the possibility of further action. Competition is king.”