The initiative aims to challenge the dominance of the country's Australian-owned banks
The government has announced measures to increase competition in the banking sector by strengthening Kiwibank and urging the Reserve Bank to prioritize competitive practices.
Finance Minister Nicola Willis outlined the initiatives, which aim to provide better outcomes for consumers and challenge the dominance of the country’s Australian-owned banks.
Willis emphasised the importance of bolstering Kiwibank to enable it to compete more effectively against the "big four" Australian banks. As an initial step, the government is advancing plans to secure up to $500m in additional capital for Kiwibank through private investment from 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,” Willis said in a statement. “The more capital Kiwibank has the more it can compete and the greater the likelihood of interest rates coming down for all bank customers.”
Willis clarified that any funds raised would be reinvested in Kiwibank’s growth, with no capital being redirected to other Crown initiatives.
Looking further ahead, the government sees a public share offering as a potential long-term capital source for Kiwibank. However, such a move is contingent on the bank completing its digital transformation, expected by 2028, and will not occur during the current government term. To address investor concerns, the government has proposed options for share buybacks at fair market value should an IPO not proceed.
In addition to strengthening Kiwibank, Willis announced steps to ensure the Reserve Bank increases its focus on competition within the sector. A revised financial policy remit and a detailed letter of expectations have been issued to guide the Reserve Bank’s actions.
The directives include reviewing risk-weighting for bank lending, reducing barriers for new banking entrants, improving access to the exchange settlement system, and easing 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.
The measures follow a Commerce Commission report that identified the banking sector as uncompetitive and overly profitable, resulting in limited benefits for consumers. “The big banks are on notice. The government is explicitly leaving open the possibility of further action if we don’t see enough progress,” said Willis.
“Competition is king. This is a pro-competition government because competition means levelling the playing field,” Willis added.
