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New Zealand

Kiwi Bank: the people's bank

The deputy prime minister of New Zealand has recently been promoting the establishment of a New Zealand-owned bank to provide branch services nationwide. It is being coined the 'People's Bank' or 'Kiwi Bank'.

In New Zealand, five banks control 90% of the country's bank assets. All five are entirely owned in either Australia or Britain and have recently enjoyed an increase in their profits. The deputy prime minister has said that people could expect full banking services and lower fees from the Kiwi Bank, and hopes its existence will encourage lower fees and the improvement of services of the other banks, as they will have to compete with the Kiwi Bank.

New Zealand Post (NZ Post), a state-owned enterprise, has put forward a business plan to run the Kiwi Bank through its branch network. NZ Post has already been using its extensive network of post shops and agencies to provide counter services for the receipt of bill payments for a variety of utility companies and other service providers. It is believed cash banking services are therefore a logical extension. It is estimated that the Kiwi Bank's set-up costs will be about NZ$80 million ($39.2 million).

It is understood that NZ Post will raise debt and pay the government a lower dividend to finance the set-up costs. The exact nature of the government's continuing proposed financial help has not yet been settled.

The level of government assistance has been raised as a concern, especially in the initial stages. Significant investment will be required in terms of human resources, and in developing adequate security and technology requirements to upgrade the existing NZ Post network, allowing it to provide core retail banking services. However, a parliamentary select committee was recently told by the NZ Post chairman and its chief executive that NZ Post already handles a large number of financial transactions and believes that its efficient postal operation and cost structure, coupled with improved back-office technology, provide substantial cost advantages over the existing banking market. The committee was also told that NZ Post intends to provide simple mortgage facilities and savings accounts, and will service private individual customers. NZ Post has said it will not enter the corporate banking market.

Previous government-owned banks have not been entirely successful in New Zealand. In the last decade, a government-owned bank had to be substantially recapitalized before being sold to the private sector. Also, a venture capital provider (Development Finance Corporation) was established in the early 1980s by the government to help businesses raise finance. This entity was sold by the government and failed shortly after that. There was no government guarantee in place, but the fact that it was allowed to collapse caused significant economic and political fall-out, both domestically and overseas.

Opposition members of parliament claim that using NZ Post as a bank will worsen its financial situation. With the increase in electronic mail, and growing competition in the mail delivery business in New Zealand, NZ Post faces an uncertain future. It is therefore not surprising it is looking at potential new activities. The deputy prime minister believes that the bank will eventually be worth more than NZ Post, although it is expected to make a loss in the early stages.

Irrespective of the philosophical arguments for and against its establishment it seems likely that existing banks will have "Kiwi Bank" as a new competitor within the next 12 months.

James Aitken, Michael Dineen, Andrea Newland

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