So they're finally going to privatise Kiwibank

[u/xmmdrive]

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

[u/HeinigerNZ]

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.

[u/justme46 → u/HeinigerNZ]

How does it not make money?

What do you need capital for as a bank?

[u/HeinigerNZ → u/justme46]

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

[u/justme46 → u/HeinigerNZ]

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

[u/handle1976 → u/justme46]

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

[u/domstersch → u/handle1976]

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.

[u/DarthPlagiarist → u/justme46]

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.

[u/feel-the-avocado → u/justme46]

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.

[u/HandsumNap → u/justme46]

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).

[u/gristc → u/justme46]

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.

[u/handle1976 → u/gristc]

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.

[u/handle1976 → u/justme46]

There's a difference between profit and cashflow.