Kiwibank's parent Kiwi Group Capital welcomes RBNZ’s bank capital review as Kiwibank faces questions on digital and competitive challenges

The Chairman of the Government-owned Kiwi Group Capital says having too much capital in the banking system is a drag on New Zealand’s economic activity and is like “over-insuring your house”.

David McLean, the former CEO of Westpac NZ, appeared before Parliament's Finance and Expenditure Committee (FEC) on Wednesday for Kiwi Group Capital's annual review.

Kiwi Group Capital was established in November 2022 to acquire and oversee the Crown’s investment in Kiwi Group Holdings, the owner of Kiwibank and The New Zealand Home Loan Company. Kiwi Group Capital and Kiwi Group Holdings subsequently amalgamated in March 2023.

McLean, who was joined by Kiwibank CEO Steve Jurkovich and Julia Jack, the bank’s chief purpose and brand officer, told MPs the group welcomed the Reserve Bank’s decision to review bank regulatory capital requirements.

McLean said although bank failures were “tremendously expensive to the economy”, having too much capital in the banking system was also counterfactual. 

“It's like over-insuring your house,” he said.

“It's a drag on economic activity. So we welcome a review that the Reserve Bank says it's going to undertake on those capital standards and it's been a while since they were implemented.”

Reserve Bank Chairman Neil Quiqley announced the review earlier this week during one of the latest sessions in the parliamentary inquiry into banking competition. 

De-risking

It was announced in December last year that Kiwbank had been instructed to reach out to NZ investors about a possible $500 million capital raise following the Commerce Commission's market study into personal banking competition.

Finance Minister Nicola Willis wants the potential raise to be used to help Kiwibank better compete against the four Australian-owned banks – ANZ, ASB, BNZ and Westpac – which are responsible for 85% of bank lending in NZ.

The capital raise was only touched on lightly in Wednesday’s review, with National MP Ryan Hamilton asking about Kiwibank’s digital transformation project and where it was at.

The Government will only consider allowing Kiwibank to raise capital through an initial public offering (IPO) on the sharemarket in 2028 if Kiwibank has finished its digital transformation project. 

“I'm not trying to be tricky here, but I think of it much more as a verb than a destination,” Jurkovich said, adding that he could only speak for the six years he’d been at Kiwibank noting when he joined the bank, it didn’t have its own network infrastructure.

“Our cybersecurity posture was really weak. Our reliability and availability was really weak. We didn't have workflow management, we didn't have a decent customer care system. All of those things have been part and parcel of what we've invested in now,” Jurkovich said.

Jurkovich noted the reason why Kiwibank had been “slow” to roll out Apple Pay and Google Pay was because the bank hadn’t been able to build those things on its existing infrastructure. 

That infrastructure wouldn’t have been able to withstand the demand the bank received over integrating Apple Pay into Kiwibank either.

“The worst thing every day was getting to my inbox and hearing from customers about why haven't we got Apple Pay yet,” he said.

ANZ was the first NZ bank to make Apple Pay available to its customers, back in 2016.

Kiwibank was the last of the bigger banks to do so, launching Apple Pay integration in December 2023. Jurkovich said within one week, the bank had nearly 300,000 customers using Apple payments. Kiwbank then announced it had also integrated Google Pay in February 2024.

Jurkovich said Kiwibank had made “really big strides” digitally and had been the fastest to deliver the confirmation of payee system – which was announced in November 2024 – without the support and infrastructure of the big banks. 

Jurkovich said the next 18 months to two years for Kiwibank would be "significant" and in his view, de-risking that period with further investment would be "the right thing to do" in terms of preparing for a potential IPO.

Hamilton then asked if Kiwibank was a “laggard” when it came to its digital transformation and wanted to know why the bank was behind other banks when it came to integrating standardised Application Programming Interfaces (APIs).

APIs are used for open banking and work as a secure channel, allowing two different systems, such as a bank and a fintech, to communicate with each other and share information. 

 ANZ, ASB, BNZ and Westpac have the technology in place already but Kiwibank isn’t expected to follow until 2026.

Jurkovich said that for Kiwibank to invest in open banking and integrate the API infrastructure into Kiwibank’s existing core system would mean that within 12 to 18 months it would have to “rebuild the whole lot”.

“Now if open banking gets off to a really strong start, being able to handle that scale through the existing platform isn't a sensible decision,” he said. 

“So we are absolutely 100% behind open banking, as a smaller player it should play to our advantage 100%.”

National MP Nancy Lu wanted to know how Kiwibank was using its record profits to strengthen the bank’s balance sheet and also grow.

Kiwibank reported a $13 million drop in half-year profit for the six months to the 31st December 2024, but for its last full-year financial period, Kiwibank posted a record $202 million profit. 

Jurkovich said the smaller NZ banks didn’t have the same access to capital that the big four Australian-owned banks do. 

“And as you can see, the biggest problem that the big four are navigating at the moment is what to do with the excess capital, particularly in Australia,” he said.

Kiwibank’s focus was balancing investing to grow, keeping up with capital requirements and investing as much as they could into the bank’s digital transformation investment. Jurkovich described it as a “balancing act”.

“And I think we've navigated it pretty well. You know, we've got plans for the next five years on our funding plan, but a capital injection would help us sustain that pathway,” he said.