Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years. He’s been a customer of Westpac NZ for decades and ASB since 2016, while Curious Media banks with BNZ.

Finance minister Nicola Willis got to wave her arms a lot this week by unleashing Kiwibank to sock it to those big nasty Aussie-owned banks, powered by some local institutional investors.

Or at least, that’s the vibe the government’s going for. The reality is a bit more like a little dog yipping excitedly.

The $500 million sum that the government’s hoping will come from local institutional investors is peanuts in the scheme of the $66.66 billion of equity already on the balance sheets of the nation’s licensed lenders.

And far from the big leveraged lending figures bandied about, it will only let Kiwibank continue to maintain its pace of lending growth while it overhauls a problematic back-end that already cost a few people their jobs almost a decade ago and frittered away $100 million in proving that SAP upgrades can be very hard to implement.

In fact, Kiwibank’s transformation programme – currently being funded out of its retained earnings – isn’t scheduled to be completed until 2028, after which having access to the capital on offer from a public listing makes a lot more sense for the local lender, or so the minister was advised, hence no initial public offerings on the cards in the immediate future.

Red under the collar

And despite not giving Kiwibank the money it needed, it was Labour’s Grant Robertson who opened the door to a float when he changed its constitution in 2022 during the money-go-round that put a $2.1 billion valuation on the lender – not a road a politician in red clothing wants to go down, even if it is more rational.

So we’re stuck with Willis extolling the virtues of tapping institutions to help get Kiwibank ready for an eventual listing, which will give it capital to compete more aggressively, although where that competition will actually be remains unclear.

The latest headline was a little short on detail, but if Kiwibank keeps up its very modest 0.5% return on assets, it’s looking at a net profit of $198 million for the year ended June 30.

Using the same 16-times earnings multiple when the New Zealand Superannuation Fund and Accident Compensation Corp got the pip with their fellow shareholder – which also happens to be where ANZ and BNZ-parent National Australia Bank are trading at on the ASX – we’re looking at a valuation of say $3.17 billion, which would mean the KiwiSaver funds and other local institutions would be eyeing up a 16% stake of the local bank.

The 21-times multiple Aussie challenger Macquarie is trading at – even with its regulatory headwinds – might be more appropriate once Kiwibank’s systems are upgraded and it can actually put its best foot forward.

Jim Anderton’s dream

The State-owned lender has at times kept the big Australian four on their toes, from its initial founding as a subsidiary of New Zealand Post, where a nationwide network of post shops slowed the inevitable retreat of banking branches.

Or when it kept the lending taps on during the global financial crisis while the big four thought better of taking any risks.

In fact, the little lender that could has grabbed 5.8% of the $682.2 billion of banks’ assets and 6.6% of $460.2 billion in deposits in spite of having its hands tied behind its back by reticent owners.

That’s primarily been in the mortgage market, where Kiwibank’s $28.9 billion of home loans amounts to 7.8% of the total market, even if its offerings don’t look overly sharp – the 4.89% one-year home loan special for someone with a 20% deposit is pretty much standard across all lenders, although it’s 6.35% floating rate compares well to the big four if not quite matching up to 5.95% from the minnow Cooperative Bank.

Not bad, although still some way behind Bank of New Zealand’s 17%, Westpac’s 19% and ASB Bank’s 21%. Big blue ANZ’s 30% mortgage market share remains seemingly unshakeable.

Kiwibank’s 5.3% share of the $7.6 billion consumer loan market, 5% share of $109 billion of business lending and virtual non-existence in agri lending shows the mortgage market is where it sees its future, which really is a large-scale play given the skinny little margins available.

Open all hours

Being a challenger in the banking sector is a tough gig, even if the emerging open banking sector is eyeing up ways to break the old-fashioned distribution networks that continue to give decades-old brand names a leg up in lending out money.

And while some might look at the success the independents have had in breaking the big four’s grip on KiwiSaver funds, the lack of capital backing needed to set up a fund manager makes that game a completely different kettle of fish.

What might be helpful for the everyday battlers is a bit more insight into Kiwibank’s strategy.

Among the many pearls of wisdom shared by NZ Shareholders’ Association chief executive Oliver Mander on ‘The Long and The Short of It’ podcast, the introduction of external investors provides the opportunity to really sharpen its focus and force the conversation as to whether Kiwibank’s future is as a profit-maximising and fast-growing lender, or as a political lever to constrain the excesses of the majors.

What we’re yet to get a steer on is what success actually looks like. Is it cheaper mortgages? Sharper returns on term deposits? A more even spread of the same pool of profits? Fewer headlines of angry credit customers?

Because ultimately, outside investors in Kiwibank will want a return on their money, and if the public isn’t willing to give it to them, this entire exercise will be a bust.

Image from Curious News.