EDITORIAL: by Peter WestmoreNews Weekly
Kiwibank: lessons from NZ
, February 22, 2003
Current circumstances facing many people in Australia, including severe drought, bushfires in some states and calamitously low international commodity prices, give particular urgency to the need for long-term low interest finance, particularly to small businesses and farmers.
Recent events in New Zealand point to a different approach to that taken in Australia.
In response to widespread concern about the operations of the privatised and foreign-owned banking industry in New Zealand, the New Zealand Government last year launched Kiwibank to provide personal banking services to people across the country.
A year later, the wider benefits of the operation of the new bank are becoming clearer.
Kiwibank began with $A63 million in startup capital from the NZ Government, and is owned by NZ Post.
In deference to the existing banks, the New Zealand Government limited Kiwibank to personal banking, so it does not provide the range of services which other banks provide to primary, secondary and tertiary industries.Network
In spite of this, within a year, it has established around 280 branches - the largest network in New Zealand - providing a range of banking services, including face-to-face banking, home loans, credit cards and deposit accounts, and has built a base of 100,000 customers.
This is despite fierce competition from the existing foreign-owned banks, ASB (owned by the Commonwealth Bank of Australia), ANZ, Bank of New Zealand (owned by the National Bank of Australia), Westpac and the National Bank of NZ (owned by Lloyds of London). Collectively, they made profits totalling over $2 billion last year.
Even before Kiwibank began the roll-out of branches last April, its competitors had responded to its formation by lowering bank charges on personal accounts.
Despite this, the new Kiwibank has been signing up around 500 people a day, putting it well on target to reach 160,000 accounts within three years.
The new bank has shown that it is able to operate competitively without closing branches and putting up fees, as the other banks did for years before Kiwibank was established.
While widely supported in New Zealand, Kiwibank has its critics, particularly the free-market ACT New Zealand Party, which has consistently criticised the Labour Government for establishing a state-owned bank.
Any possible criticism from the main opposition party, the National Party, was defused when the Government appointed a former National Party Prime Minister, Jim Bolger, as Chairman of Kiwibank.
Despite the fact that its range of financial services are strictly limited, Kiwibank has shown that there is a need for a publicly-owned bank to provide essential services, and to provide competition to privately-run banks whose focus is only on profits.
Despite its rapid establishment, Kiwibank remains small by New Zealand standards. Westpac has around 1.3 million customers, although many of these are businesses, which lie outside Kiwibank's charter.
It has been estimated that there are 250,000 small businesses in New Zealand.
A strong advocate of the expansion of Kiwibank into providing business services is NZ Economic Development Minister, Jim Anderton, who said last year that he would prefer businesses to "spend their cash on growing their businesses [rather] than expanding the profits of the Australian banks through excessive fees and business lending rates."
The same issue exists in Australia, where there is a pressing need for a national development bank to service the needs of small businesses, farmers and others, as was done with the Commonwealth Development Bank, until it was privatised about 20 years ago.
Mr Will Bailey, former chief executive of the ANZ Bank, has called for a major public debate and inquiry into the establishment of a new development bank, backed by the Federal Government, to meet a major gap in the provision of banking services in Australia.
Mr Bailey said such a bank could provide long-term finance for farmers and small businesses.
"If a new bank was government owned or guaranteed, it could raise funds at lower rates of interest in the financial markets. The Government could provide seed money for its establishment, just as the New Zealand government is currently providing about $A63 million to establish their new 'people's bank'. It could also obtain low cost funds from the Reserve Bank," he said.
His call was also supported by Australia's former negotiator to GATT, Colin Teese, who said such a bank "would make an important contribution to development".
He added, "The arrangement is widely used overseas, especially in Europe, to help keep farmers on the land. If adopted here, we could expect it to have the same effect. It would also help our farmers meet the subsidised competition they inevitably face in overseas markets."
The successful launch of Kiwibank provides the model for a similar initiative in Australia.
- Peter Westmore is President of the National Civic Council