Photo source: Wikimedia Commons
The New Zealand government has launched a comprehensive plan to boost competition in the banking industry, with a focus on empowering Kiwibank and directing the Reserve Bank to prioritise competitive practices.
Finance Minister Nicola Willis has introduced a series of measures designed to improve consumer outcomes and challenge the market dominance of Australian-owned banks in New Zealand. The centerpiece of this strategy is a crucial capital injection for Kiwibank, the state-owned financial institution.
To strengthen Kiwibank’s competitive position against the “big four” Australian banks, the government is pursuing a capital raise of up to NZ$500 million. The additional funding will be sourced from private investors, including KiwiSaver funds, local investment institutions, and professional investor groups.
“New Zealand is often seen as the little brother against the Aussies. We’re trying to give that little brother a little bit more muscle to get a fairer deal for Kiwis,” said Willis.
She further explained that increased capital for Kiwibank would improve its competitiveness and potentially lead to lower interest rates across the banking sector. She also clarified that all funds raised would be reinvested in Kiwibank’s growth, with no diversion to other government initiatives.
Looking ahead, the government is considering a public share offering as a potential long-term capital source for Kiwibank. However, this step is contingent on the bank’s completion of its digital transformation, expected by 2028, and will not be implemented during the current government term. To alleviate investor concerns, the government has suggested the possibility of share buybacks at fair market value if an IPO does not materialise.
Boosting Regulatory Focus on Competition
In addition to bolstering Kiwibank, Willis has announced measures to ensure the Reserve Bank intensifies its focus on sector-wide competition. These include:
- Reviewing risk-weighting for bank lending
- Reducing entry barriers for new banking entities
- Improving access to the exchange settlement system
- Relaxing restrictions on the use of the term “bank”
The government also expects progress on lending for housing on Māori freehold land and expanding access to bank accounts.
These initiatives follow a Commerce Commission report that identified the banking sector as uncompetitive and excessively profitable, resulting in limited consumer benefits.
“The big banks are on notice. The government is explicitly leaving open the possibility of further action if we don’t see enough progress,” Willis added.
The Finance Minister concluded by emphasising the government’s pro-competition stance. “Competition is king. This is a pro-competition government because competition means leveling the playing field.”