Govt Boosts Kiwibank and Demands Greater Competition in Banking Sector

New Measures Target Market Dominance of Big Australian Banks and Aim to Deliver Better Deals for Kiwis.

The government has unveiled a bold plan to enhance competition in the banking sector by strengthening Kiwibank and directing the Reserve Bank to prioritize competitive practices. Finance Minister Nicola Willis announced the measures, emphasizing the need to challenge the dominance of Australia’s “big four” banks and deliver better services and rates for New Zealanders.

“We’re giving Kiwibank the tools to compete more effectively against the Australian-owned banks that dominate our market,” said Ms. Willis. “This is about giving New Zealand’s little brother the muscle to ensure Kiwis get a fairer deal.”

Kiwibank’s Growth and Access to Capital

As a first step, the government is enabling Kiwibank to access up to $500 million in new capital through private investment. Discussions are underway between Kiwibank’s parent company, Kiwi Group Capital, the Treasury, and New Zealand-based KiwiSaver funds, investment institutions, and professional investor groups.

“This isn’t about selling Kiwibank,” stressed Ms. Willis. “Any private placement will be used solely to grow Kiwibank’s business, with no return of capital to the Crown.”

While a public share offering (IPO) could be a long-term solution for raising additional capital, this option will not be pursued until Kiwibank completes its ongoing digital transformation, expected by 2028. In the meantime, institutional investors will have the option to sell shares back to the Crown at a fair value, ensuring flexibility and confidence in their investments.

“The more robust Kiwibank is, the more competitive the sector becomes, leading to lower interest rates and better options for all bank customers,” added Ms. Willis.

Reserve Bank’s Role in Boosting Competition

To further level the playing field, the government has directed the Reserve Bank to make banking competition a priority. A revised Financial Policy Remit, along with a new Letter of Expectations, lays out specific actions for the Reserve Bank, including:

Expanding access to the exchange settlement system, with decisions expected by March 2025.

Reviewing risk weightings for various types of bank lending.

Lowering minimum capital thresholds for new entrants.

Revisiting restrictions on the use of the term “bank.”

Reducing barriers to lending for housing on Māori freehold land.

Collaborating with industry to increase the accessibility of basic bank accounts.

“The Reserve Bank has a dual responsibility to maintain financial stability while fostering competition,” said Ms. Willis. “This renewed focus will encourage innovation and reduce barriers for smaller players in the sector.”

Holding Big Banks Accountable

Ms. Willis warned the major trading banks to improve services for consumers or face further government intervention. Key expectations include accelerating open banking initiatives, enhancing the Payments New Zealand switching service, and making home loan comparisons more transparent.

“The Commerce Commission’s market study revealed an uncompetitive, two-tier oligopoly that doesn’t serve New Zealanders well,” Ms Willis noted. “The big banks are on notice. If progress is too slow, we won’t hesitate to take further action.”

A Pro-Competition Government

The government’s efforts aim to dismantle barriers that prevent smaller banks and new entrants from competing with established players. The changes are expected to foster innovation, improve customer service, and promote fairer practices across the banking sector.

“Competition is king,” said Ms. Willis. “When banks compete, customers win. We’re committed to tipping the scales in favour of New Zealanders and smaller players, ensuring the sector delivers better value and services to everyone.”

The measures are part of a broader strategy to modernize the financial sector and ensure it meets the needs of businesses, communities, and individuals across New Zealand.