Treasury will next year undertake the work, pledged in the Labour-NZ First coalition agreement, to investigate what would need to happen for Kiwibank to be capable of taking on the Government's transactional banking business.
The Government's banking business is not scheduled to be put out to tender again until 2023, and Kiwibank is currently well shy of having the capacity to take it on.
"It’s appropriate that this work is happening in 2019, because even if the advice Ministers receive in late 2019 is that there are sufficient pros to pursue this path and Ministers decide that there is sufficient merit in positioning Kiwibank to bid in 2023, Kiwibank would need to undergo fundamental change," a Treasury spokesman told interest.co.nz.
"This is not something that could happen overnight. Currently Kiwibank’s core business has been built around residential lending and its key capabilities are in retail and SME business banking."
"To be able to provide full banking services to the Crown, it would require institutional and corporate banking expertise; specialised transactional banking capability; specialised liquidity management; a much more sophisticated technology platform to cope with the huge transaction volumes involved; different investment and risk management skills; and additional capital support," the Treasury spokesman said.
"The report will consider the merits, pros and cons, of Kiwibank positioning itself to bid for the contract when it next comes up for tender. Of course, we do not know what the report will determine. It also goes without saying that there is no guarantee that Kiwibank would be the winning bidder if it were to bid."
This Kiwibank work is included in the coalition agreement between Labour and NZ First, which says their government will; "Investigate growing Kiwibank’s capital base and capabilities so that it is positioned to become the Government’s banker when that contract is next renewed."
Westpac, the Government's banker since the late 1980s, retained its role as provider of Crown transactional banking services in 2015 after the first tender of the services since the 1980s. However, five other banks also picked up a slice of the Government banking pie including Kiwibank. Eight year contracts were awarded with the categories and banks listed below;
Crown Transactional Banking: Westpac New Zealand.
· Foreign Exchange Transactions: ANZ Bank New Zealand; ASB; BNZ; Citibank N.A. – New Zealand Branch; and Westpac New Zealand.
· Payment Services: ANZ; ASB; BNZ; Kiwibank; and Westpac.
· Card Services: ASB; BNZ; Citibank; and Westpac.
After the coalition agreement was revealed late last year, Westpac NZ CEO David Mclean told interest.co.nz the government-Westpac core transactional banking contract gives "fantastic outcomes" for taxpayers, and Westpac's not afraid of competition. And as previously reported by interest.co.nz, part of Westpac's deal sees it stump up $10 million for an innovation fund over the eight-year term of the contract.
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