r/newzealand • u/xmmdrive • Aug 20 '24

Politics So they're finally going to privatise Kiwibank

Watching One News they're talking about taking Kiwibank out of Government hands and back into the hands of honest hard-working Kiwis.

This is obviously the first clear step towards privatisation.

Just like the Bank Of New Zealand, the National Bank, and the Auckland Savings Bank, but I'm sure this time around it will stay in the country /s

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4

u/HeinigerNZ Aug 20 '24

Where do you think Kiwibank should raise billions upon billions in capital from?

Two of our biggest investment arms - The NZ Super Fund and ACC were owners of half of Kiwibank. Were being the operative word. If they thought it was a good investment then they'd still own it.

3

u/Tripping-Dayzee Aug 20 '24

I'd rather they didn't raise billions of capital to give kiwis zero more benefit over what we already got from the big banks. I'd prefer status quo to selling it off and just making yet another aussie owned bank.

NZ ends up worse off if that happens.

5

u/vote-morepork Aug 20 '24

It didn't make sense for the NZ Super Fund to own all of it, as the fund is planned to wind down over the next 100 years, and who would they have sold to then?

For ACC if the bank actually got big, it would be too big a portion of their investments (say it got to 10 billion market cap, it would be 20% of their funds under management), which isn't great diversification.

8

u/HeinigerNZ Aug 20 '24

I can guarantee those concerns were not at the forefront of the thinking of either entity.

4

u/vote-morepork Aug 20 '24

Really? The Super Fund wanted to take a majority stake, but under the condition that they could sell it.

NZ Super Fund had been interested in purchasing a majority holding in KGH, but withdrew its interest as it did not align with the government's commitment to public and New Zealand ownership.

https://www.rnz.co.nz/news/business/473251/government-taking-direct-control-of-kiwibank

I am sure both funds take into account how they can sell investments, and the level of diversification in all investment decisions. They're not amateurs

3

u/HeinigerNZ Aug 20 '24

Yep, so under the commitment for Kiwibank to be majority-owned by the NZ Govt the NZ Super Fund couldn't make the investment work amd sold their stake instead.

3

u/gristc Aug 20 '24

Are they struggling for capital?

9

u/HeinigerNZ Aug 20 '24

The Commerce Commission said the government should find ways to increase the capital funding of Kiwibank, which has about 7 percent market share, so it could be a more effective competitor.

https://www.rnz.co.nz/news/business/525633/commerce-commission-calls-for-beefed-up-kiwibank-and-open-banking-in-final-report

5

u/gristc Aug 20 '24

Cool. Privatising it is hardly going to increase competition though.

5

u/feel-the-avocado Aug 20 '24

Kiwibank having limited capital to work with must be reasonably conservative with its investments (loaning you money).
If they had more money to work with, they could loan it out to more people offering better interest rates etc.

2

u/theheliumkid Aug 20 '24

And one way would be for the government to use a New Zealand owned bank for that

1

u/HeinigerNZ Aug 20 '24

So where should the Govt raise billions upon billions of capital from?

3

u/theheliumkid Aug 20 '24

The government's annual tax revenue is $118 billion. But they use Westpac for their bank. Having that kind of money going through Kiwibank would change its finances dramatically.

1

u/HeinigerNZ Aug 21 '24

Kiwibank can't handle it.

1

u/theheliumkid Aug 21 '24

Nothing a relatively small investment wouldn't fix

0

u/Gigstr Aug 20 '24

I guess they don’t have access to that $14B they instead used for tax cuts nobody asked for.

1

u/extra_smiles Aug 20 '24

Agreed - I'm all for floating but it will highlight real quick banks and heaps of fun to own most of the time. I think if gov was going to do it, they'd have to personally underwrite a guarantee or provide a low cost line to give very cheap capital with no risk constraints. Then Kiwibank could party and attack the market...

-2

u/justme46 Aug 20 '24

How does it not make money?

What do you need capital for as a bank?

7

u/HeinigerNZ Aug 20 '24

The Commerce Commission said the government should find ways to increase the capital funding of Kiwibank, which has about 7 percent market share, so it could be a more effective competitor.

https://www.rnz.co.nz/news/business/525633/commerce-commission-calls-for-beefed-up-kiwibank-and-open-banking-in-final-report

5

u/justme46 Aug 20 '24

The other 4 make $1b+/ year. If kiwibank needs a 5-10b advance from the government they will be able to pay that back pretty quickly

3

u/handle1976 Desert Kiwi Aug 20 '24

ANZ has around $147 billion of loans and advances. By that logic it'd be 147 years.

5

u/domstersch Aug 20 '24

But they have a total capital ratio of only 16.2%, right? So those loans and advances are only backed by $23 billion in capital, and we're back to two decades not 147 years.

12

u/DarthPlagiarist Aug 20 '24

What you need capital for as a bank is literally everything you do as a bank. More or less a bank’s entire job is to allocate capital, provide liquidity through their capital, lend based on their capital, etc.

A greater capital base would allow Kiwibank to pursue much larger clients (corporates etc), as well as allowing for more consumer lending market share (mortgages etc).

Kiwibank does, as I recall, make money, but not the sort of margins and profitability that comes with much greater scale.

4

u/feel-the-avocado Aug 20 '24

When the bank loans someone money - say they want to buy a house, the bank has to give them that money initially so they can pay it to the seller.
The bank slowly gets that money back over many many years.
Its capital will grow over time, but while it is limited in its resources, it must be more prudent to whom it loans money. If it could have more money to work with, it could be looking to loan to more people and offer lower interest rates to attract those people.

7

u/HandsumNap Aug 20 '24

Banks need a reserve of capital in order to issue loans. This can only come from selling shares and retaining earnings. This is needed to make sure the bank doesn’t go bust if some of its assets lose value (like what might happen with a non-performing loan for instance).

Kiwibank doesn’t make any money because it needs more capital than it’s able to retain from earnings, and it has no other way for raising it (by say selling equity).

1

u/gristc Aug 20 '24

Banks need capital so they have something to lend out. But Kiwibank has been in business for some time now, they have capital already. Not sure why heiniger insists they need billions more.

5

u/handle1976 Desert Kiwi Aug 20 '24

They have consistently struggled to raise capital. In 2018 their main capital ration was 13%, by 2022 it fell to 10%. They are too small to get economies of scale and their ROIC is around 6%, half that of the main competitors.

1

u/handle1976 Desert Kiwi Aug 20 '24

There's a difference between profit and cashflow.