Damien Grant: Kiwibank did not keep its promises

Damien Grant is an Auckland business owner and regular opinion contributor for Stuff, writing from a libertarian perspective.

OPINION: Like many big leaps forward, Kiwibank failed to deliver on its promises.

Jim Anderton, the godfather of this badly started adventure, was full of optimism in the face of this new adventure.

He predicted in 2000, a year before the bank was born, that 40% of New Zealanders would “seriously consider moving their banking to a People’s Bank”.

“… [T]he reality is that foreign banks make $1.6 trillion in profits a year in New Zealand,” complained Anderton.

Today, ANZ alone earns more than that every year.

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“People feel good about doing business with a New Zealand public bank. They feel even better when they find out that lower fees are charged for full banking services. »

I have a Kiwibank account, acquired for its novelty value. The Kiwiana kitsch wasn’t enough to capture my day-to-day banking, mortgage or business trading, but the account remains open.

The current Kiwibank logo.  The bank is about to become fully state owned.


The current Kiwibank logo. The bank is about to become fully state owned.

As far as I know, it charges the same fees as my other accounts. As I type this, Kiwibank home loans are the same as those offered by other commercial banks.

Kiwibank has $32 billion in assets, compared to more than half a trillion held by the big four. It does not have the ability to move the market.

Anderton’s legacy had no discernible impact on the banking scene. It was never okay.

Anderton and others who share his worldview believe that the excessive profits made by banks are the result of corporate greed.

It’s a shame Anderton left us, because I share his distaste for the grotesque margins banks are able to earn; but the former Deputy Prime Minister misdiagnosed the problem.

Ella Bates-Hermans / Stuff

Banks, like any business, want to charge as much as they can. That’s what it means for your interest rates.

Banking is not a free market. It is illegal to run one without a license from the central bank. Banks must seek permission from the Reserve Bank to know who can be a director, and even the appointment of senior executives requires regulatory approval.

They are subject to scrutiny and heavy disclosure and capital adequacy requirements.

On the positive side of this ledger are the fantastic profits a regulated utility can earn.

If you are a licensed bank, people know it is safe to deposit their money with you because there is an implicit, if not explicit, government guarantee. It is therefore very inexpensive to raise funds that you can lend out with a good return.

Former National Prime Minister Jim Bolger became Kiwibank's first chairman and is pictured with the new bank's logo in 2001.

Craig Simcox

Former National Prime Minister Jim Bolger became Kiwibank’s first chairman and is pictured with the new bank’s logo in 2001.

If banks were to compete in an unregulated market, those margins would be squeezed as hard as skinny jeans on an aging lothario. But they don’t.

Strict prudential supervision and an intrusive regulatory regime have created an oligopoly where a small number of institutions compete as fiercely as two gas stations in a three-horse town.

So. In 2001 Kiwibank was born, with a small capital injection, access to the New Zealand Post branch network and the benefit of James Brendan Bolger as initial chairman for nine long years.

The bank has scored some achievements. Thirty billion is not nothing considering the low initial investment made.

Over a million of us have opened an account at some point. According to Sir Michael Cullen’s autobiography, it was the largest provider of new mortgages in New Zealand in the aftermath of the GFC as Australian banks pulled out.

When I deal with clients who are insolvent or bankrupt, the big banks close their accounts and refuse further business. I refer these people to Kiwibank, which will offer facilities to all who request it.

It is an important service. You have to admit it, and it’s something that would make Jim Anderton proud. Like it should be.

Yet its current shareholders want out. The Crown will borrow $2.1 billion to take ownership of NZ Post, ACC and the Super Fund.

Finance Minister Grant Robertson announced the government's plan to take full ownership of Kiwibank.


Finance Minister Grant Robertson announced the government’s plan to take full ownership of Kiwibank.

Although Kiwibank did not live up to the hope that Anderton had invested in it, there is a serious realization. It demonstrates the inadequacy of a public enterprise to one driven by private interests.

Last year, it made $131 million in after-tax profits on its $32 billion asset base.

ANZ, with a six times larger asset base, makes 16 times more profits.

Kiwibank is to banking what Aeroflot is to aviation.

There is no reason for the Crown to spend a single shilling on this experiment, but the beautiful thing about government is that the failure of any business is always caused by a lack of taxpayers’ money.

“We obviously take seriously the importance of continuing to support Kiwibank, so yes the government is ready to invest more capital,” Grant Robertson told a disinterested audience. The Minister of Finance welcomes the opportunity to add Kiwibank to the successes of KiwiBuild and KiwiRail.

Jim Anderton was the driving force behind the launch of Kiwibank.  He is pictured at his branch in Halswell, Christchurch, in 2002 handing out certificates to foundation clients.

Annette Turnbull-Dew/Stuff

Jim Anderton was the driving force behind the launch of Kiwibank. He is pictured at his branch in Halswell, Christchurch, in 2002 handing out certificates to foundation clients.

Useful, the opposition took the opportunity to demonstrate again its inability to hold office. Michael Woodhouse, the public enterprises spokesman, said he was “…although Kiwibank remains publicly owned”, lamenting only that if the government were to own a bank it would have to be run with such discipline. commercial as possible. .

It is difficult to understand which formation is more ineffective: the bank or the National Party.

ACT executive David Seymour has at least felt he prefers a partial sale of the underperforming asset, but he’s unwilling to commit publicly to what he knows needs to be done.

Kiwibank should be sold and the cash used to pay off our exploding sovereign debt.

It will not happen. We’re going to borrow just over half a percent of our GDP to buy an asset that paid a dividend of $17 million last year.

We have been here before. For decades, we have borrowed recklessly, made magnificently reckless but politically popular investment decisions, and ignored economic reality. Eventually, we were forced into painful reforms.

I am not afraid that we will have to endure this process again. It’s that we won’t.

Imagine the crisis of the mid-1980s without MM. Prebble and Douglas? Yet that is where we could be headed.

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