How the Co-operative Bank wants to be as big as Kiwibank by attracting customers with a caring attitude

By Gareth Vaughan

The Co-operative Bank's chief executive says he expects another New Zealand owned bank to grow to a similar size as Kiwibank in retail banking over the next decade and he wants it to be his bank.

Bruce McLachlan, who took the new bank's helm in June, told interest.co.nz in a Double Shot interview the Co-operative Bank appealed to a "very large" group of New Zealanders.

"It's not a demographic. It's not a group of New Zealanders you can divide up by age or income (or) political persuasion," McLachlan said. "It's actually an attitude. We find the attitude exists in New Zealanders from north to south, of all age groups, of all incomes. And there is a common element in that group and that is that they care about New Zealand and they are about people. And that real caring attitude is really our target."

McLachlan joined from Westpac, where he had stints leading both Westpac's business banking unit, and retail banking customer facing businesses. He was also acting CEO for nine months during 2008/09.

Having an "attitudinal" target market is a challenge for the Co-operative Bank, which has about 125,000 members and changed its name from PSIS upon gaining banking registration from the Reserve Bank last October.

"It's a marketing challenge because having a clear demographic is way easier than having an attitudinal target segment. But it's quite exciting just looking at what we can do with that," said McLachlan.

"I'm personally 100% confident that in the next 10 years another Kiwibank will emerge . Another New Zealand owned bank will end up as a major player in New Zealand retail banking. In retail banking there's a window open for another retail player that's New Zealand owned. I want it to be us," McLachlan added.

"I'm not going to give you numbers but Kiwibank has taken on 800,000 New Zealanders in 10 years and I'm pretty confident that someone else is going to do the same in the next 10 years. We haven't targeted 800,000 (customer/members) over 10 years but what I'm saying is there is room for a very significant player...and we intend that to be us."

Current account 'the heart of any banking relationship'

As of June 30 the Co-operative Bank had total assets of NZ$1.47 billion including total loans of NZ$1.2 billion, total liabilities of NZ$1.34 billion and members' reserves of NZ$130.9 million. By comparison state owned Kiwibank, which opened for business in 2002, had total assets of NZ$14.7 billion, with total loans at almost NZ$12.5 billion, total liabilities of NZ$13.9 billion, and total equity of NZ$747 million.

Asked how and where he thought the growth might come from, McLachlan said the key was doing the retail banking of everyday customers rather than following the home loan driven Kiwibank growth model.

"I think it is wrong to focus too much on mortgages. The heart of any banking relationship is a customer's current account and the way that links through to the way that facilitates them to live their lives, particularly these days through online services and things," McLachlan said. "So the current account is still the core of banking and everything else feeds off that. Personal loans, credit cards, ultimately mortgages. It's not actually skewing your business towards one product set like mortgages. That's just one very capital intensive product."

And in terms of geography the upper North North Island, from Hamilton north, would be key.

"The reality is 40% of New Zealanders live Hamilton north. So if you're going to grow in New Zealand in the future you have to have a big focus on that area of the country because that's where a lot of the growth is going to come from. And we all know the young market is Hamilton north. It's a different strategy in Hamilton north than it is for the rest of the country," said McLachlan.

He hinted at more branches in the north, saying the Co-operative Bank needs "more points of representation" in this part of the country, where many of its "brand efforts" will go.

"This market is more multi-cultural, it's much younger, so you really have to have strategies that are focusing on those aspects," McLachlan said.

Ultimately he wants the Co-operative Bank to help retain control of more of the profits generated in the New Zealand banking sector within the country.

"We all know that we can't continue as a country with NZ$2 billion a year accruing to offshore shareholders. If you look at that over a decade it could be NZ$25 billion accruing to overseas shareholders. That's not sustainable for New Zealand. We will end up as tenants in our own country if we don't retain control of some more of our own assets and banking is one of them. I really see that there are New Zealanders who want to grab hold of that opportunity."

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