By Sam Stubbs. This article was originally written & published in The Post.


In 2025, our four biggest banks made combined after tax profits of $6.7 billion. That’s an average of over $18 million a day, $764,000 an hour, $12,000 a minute, and $212 every second - including weekends and public holidays. In a time when many Kiwis have been doing it tough, their profits rose from $3.9 billion in 2020. No matter how tough the economy was, their profits consistently grew.

To me, that more than anything shows the grip the big banks have on consumers, with their cartel-like behaviours. Those aren’t my words, they’re the Commerce Commission’s. Like the Mafia, they make so much money, yet are so unpopular, indicating something is seriously wrong.

Why hasn’t KiwiBank dented big bank profits?

What’s interesting to me is how ineffectual KiwiBank has been in getting big bank profits down. This matters, because if it could compete properly, it would mean lower mortgages and higher term deposit rates for everyone. Mortgage lending is so huge that if rates drop 1/10 of 1% - say from 4.9% to 4.8% - borrowers would pay a combined $440 million less in interest, every year. That buys a lot of food and electricity.

The reason why KiwiBank hasn’t dented these profits is quite simple - it has been starved of the shareholder capital it needs to grow. Shareholder capital is to a company like water is to a plant - you simply can’t grow without it. Successive Ministers of Finance, on both sides of the house, have got addicted to KiwiBank’s modest but growing dividend to the Crown. Better to spend it on winning votes now, than asking KiwiBank to re-invest it and grow.

The dirty little secret of our SOEs

This is the dirty little secret of our State Owned Enterprises (SOEs). They are encouraged by the politicians to make the most money they can, so the Government of the day can take the dividends to spend on things that please voters. A politician saying ‘we would build that hospital, but we’re giving that money to KiwiBank and the power companies to grow, increase supply and get mortgage rates and power prices down’ simply isn’t a vote winning strategy.

But it’s a little sordid, because the same politicians then blame the management - of the same companies they own and/or control - for under-investing, restricting supply and charging their customers too much. It’s like taking your child’s pocket money and then blaming them for not saving. The huge downside of this political game is that SOEs are starved of money to expand. That means less supply, and higher prices. It’s economics 101.

The public have been kept blissfully unaware of this political polka. It has been fascinating to me to see how little connection voters draw between high power prices, expensive mortgage rates, and the fact that the Government owns 100% of KiwiBank and 51% of the three biggest power companies. Who is to blame for our high power prices and mortgage rates? Actually, the very Governments we elected to get them down.

The grim reality is, KiwiBank is an under-capitalised minnow that has failed to bring proper competition to the big Aussie banks. It’s even worse, because KiwiBank is the excuse for Aussie bank CEOs to say it’s a properly competitive market here, and escape further regulation. There have been some attempts over the years to find more money for KiwiBank, but all have failed, because politicians wanted outside capital, while keeping 100% Government control. Sadly, it simply doesn’t work that way. Just like voters saying ‘no taxation without representation’, investors need to feel like owners.

So how do we fix this?

How can we get KiwiBank beefed up to take it to the Aussies, without taxpayers’ money, yet keep it 100% publicly owned? Actually, it’s now quite easy. Given the growth of KiwiSaver, it would now be possible to list KiwiBank on our Stock Exchange, with only New Zealand investors, and raise the money required to properly compete.

Here’s how it would work. KiwiBank would list on the Stock Exchange, with only New Zealanders able to own shares. The Stock Exchange rules now allow for that. There would be a Government-owned ‘Golden Share’, so that the ownership rules could never change. No offshore owners of KiwiBank, ever.

KiwiBank shares would be worth billions, so it would be in the Stock Exchange Top 20 index, meaning almost every KiwiSaver fund would own some shares. That would mean over 3 million KiwiSavers, plus any Iwi or individual investors that wanted to buy shares, would own it. So while KiwiBank wouldn’t be Government owned, it would certainly be 100% publicly owned, and forever.

We would then have a 100% locally owned bank, listed on the Stock Exchange, with the financial muscle to take it to the Aussies. As it grew, KiwiBank could raise the money it needed to expand via the Stock Exchange, costing the taxpayer nothing. The proceeds of the listing - in the billions of dollars - would be available to spend on anything the Government and public wanted.

The net result

A locally owned banking giant would be less inclined to overcharge its customers. The evidence for this is clear. The Aussie banks here have consistently made more from their Kiwi customers than their equivalent Australian ones, because they care less about the opinions of their Kiwi clients than those at home. This would be the same for KiwiBank, who would care more about their local customers, most of whom would also be shareholders via their KiwiSaver fund.

The added competition from a much bigger KiwiBank would help get mortgages down and term deposit rates up, with billions more for health, education, or whatever the public wanted. The profits from KiwiBank would still go 100% to New Zealanders. It’s a huge win/win.

Listing KiwiBank, with 100% local ownership, takes it from being a little league player into an All Black of banking. Who wouldn’t want that? Oh, that’s right, the big Aussie-owned banks…

It’s now time to beef up KiwiBank, and beat the Aussies. Thanks to KiwiSaver we now have the tools, and the money, to do the job.

This article is editorial commentary, reflects the personal views of Sam Stubbs, and does not necessarily represent the views or policies of Simplicity NZ Limited. The content is provided for general information purposes only and does not take into account your individual financial situation or goals. It is not financial advice or a recommendation. Any external resources are provided for convenience only and are accessed at your own risk. Simplicity does not endorse or accept responsibility for any third-party content referenced in the article. Simplicity NZ Ltd is the issuer of the Simplicity KiwiSaver and Investment Funds schemes. For Product Disclosure Statements visit our website simplicity.kiwi.