Would the Prime Minister write Kiwibank a cheque for $500 million? Christopher Luxon says he won’t preempt Treasury advice

Prime Minister Christopher Luxon declined to say whether he thinks $500 million is sufficient capital for Kiwibank – but he thinks there are “regulatory things” the Government can do to make sure Kiwibank becomes a maverick bank that better competes with the big four banks. 

Luxon appeared at a Bloomberg News event on Friday where he was interviewed by New Zealand Bureau Chief Matthew Brockett. 

It was revealed to the audience early on that Brockett and Luxon had actually worked together at McDonalds when they were teenagers. 

“We've come a long way, haven't we,” Luxon said. “We played squash together. We ran the drive through. We did it all.”

After reminiscing about the time Brockett whacked the then future 42nd Prime Minister in the eye with a squash ball, the pair fast forwarded a few decades to discuss the National-led Coalition Government’s first 10 months in power.

During the conversation, Brockett asked Luxon if $500 million would be a good start to grow Kiwibank.

The Government is exploring ways to raise new capital to help Kiwibank try to become the “maverick disrupter” in the personal banking market as desired by the Commerce Commission. 

Luxon told Brockett the Government was taking advice when it came to raising capital for Kiwibank.

He said he wouldn’t preempt that with what he thought as Finance Minister Nicola Willis had advice coming back to her over the course of the next few months about it.

Brockett then asked if Treasury thought Kiwibank needed more than $500 million in capital, but Luxon said he wasn’t going to get into it as Treasury hadn’t yet formally given its advice. The bank's CEO Steve Jurkovich has suggested $500 million could go a long way.

“But suffice to say Kiwibank is one of those things alongside some other regulatory things that we can do to make sure that they are a maverick that is actually challenging the system and has the capital to be able to do that,” he told Brockett.

“And so being able to access capital, whether it be from our super funds here in New Zealand or New Zealand investors, is kind of important. But again, we've got a process in place, we’ll let Treasury come back with that advice and take it forward from there. But again, there's an intent, and more than intent, as you're seeing with the Finance and Expenditure Committee to look at banking in particular to make sure that we do shape that up.”

The Finance and Expenditure Committee and Primary Production Committee have been tasked by Parliament with a joint inquiry into bank competition.

Conducting a banking inquiry was a coalition agreement between National and New Zealand First.

Jurkovich told interest.co.nz in August that $500 million would give the bank “a lot of runway” when it came to capital investment. 

“... $500 million would give us a lot of runway to keep growing as fast as we are now, which is 9.5%, 10% [per annum], which is pretty large gains. That sort of investment over the next three, four years would give good runway," Jurkovich said at the time.

Brockett also asked Luxon if he supported Willis’s idea that the Reserve Bank (RBNZ) could reduce its capital requirements for banks in order to lower borrowing costs and increase competition.

“Yep, I do,” Luxon said. “We’re looking at what we can do around our financial remit policy to make sure that, again, [we] bring more competition into that sector and into that market."

Willis and Commerce and Consumer Affairs Minister Andrew Bayly are planning to act on all 14 recommendations in the Commerce Commission’s final report into competition for personal banking services, which was released in August.

Willis said in August the Commerce Commission’s report had proven NZ’s banking sector is uncompetitive, and Kiwis are not being well served by a highly profitable, two-tier oligopoly.