Why we need a kiwi bank - Anderton Speech
Hon Jim Anderton
10 April 2001 Speech Notes
Why we need a kiwi bank
Address to the Wellington People's
Lukes Lane, Te Aro.
7.30PM Tuesday, 10 April 2001
Thank you for the opportunity to talk about the kiwi bank.
Not much more than year ago the Alliance was putting up election campaign hoardings.
Some of them promised Our Bank…Opening Soon.
We had been looking at what the large overseas-owned banks were doing.
Fees were increasing.
Branches were closing.
Staff were being laid off in their thousands.
Some towns were left without any banking services at all – not even an ATM.
It didn’t escape many people’s notice that they all seemed to charge exactly the same interest rate.
And they all announced increases in interest rates within a day or two of each other.
Many people felt that the banks just didn’t want them.
I met with the chief executives of some of the leading banks and talked to them about the issues.
They told me it was true that the banks felt some customers were not worth their while.
It’s true that many people are happy with their banking services.
High value customers, for example.
Corporates who need the services of a foreign exchange dealing room.
But I don’t imagine there are too many of them here tonight at the People’s Centre.
The reality is that a great many New Zealanders wanted better service.
Above all, people don’t mind paying bank fees so much if they know the profits are being recirculated in their own local communities.
And so we looked at what could be done.
We found that New Zealand Post had an established network of branches around New Zealand.
NZ Post was already providing branch agency services on behalf of other banks.
And it had proven itself as one of New Zealand’s most successful businesses.
The solution we developed was to establish a publicly-owned New Zealand bank using the NZ Post branch network.
The decision to allow New Zealand Post to establish a banking arm is one of the most significant decisions the Government has made this year.
It’s a decision that I have described as a defining moment for New Zealand.
The Opposition are enraged about it.
There is a simple reason.
They recognise that this is about the kind of New Zealand we are going to live in.
For them, it was a New Zealand where everything was sold.
The Government had no role.
It was a New Zealand where we were told we weren't capable of doing things for ourselves.
In the past, governments focused on cutting costs.
They wouldn't take any part in building New Zealand's future.
As a result, they built up monumental overseas debt.
We now owe more than a hundred million dollars overseas – more than the entire country produces in a year.
So much of New Zealand is owned overseas, that the out-flow of profits made by overseas owners each year is the same size as our overseas deficit.
We haven’t spent more overseas than we have earned for almost thirty years.
I used to ask people like Richard Prebble and Lockwood Smith why we were selling everything and removing protection for our economy.
I was told it was so that New Zealand could buy the rest of the world.
In fact, most of the time New Zealanders are making a net loss on investments overseas.
The kiwi bank signals a new direction.
We are saying, maybe New Zealanders should build something for ourselves and own it.
Why shouldn't New Zealanders own a bank?
If New Zealand wants a country where we try to do things, where we give things a go, then New Zealand needs to get behind this bank.
Opponents of the bank want to go back to the New Zealand of the eighties.
They want to turn the clock back to the days when governments sat on the sidelines and hoped everything would come right.
New Zealanders are better than that.
I believe we are the most creative and talented people in the world.
We can do anything we want to do.
This bank is about New Zealanders owning New Zealand assets.
We should have some control over our own social and economic destiny.
We should keep in New Zealand some of the profits that are made in New Zealand.
This bank is going to offer convenient, low cost banking.
I am amazed at the political opposition to that.
If a successful business like NZ Post can offer better service at lower cost – we should be encouraging them.
It has a significant advantage in the market.
It will have a competitive position in the market – it will be kiwi owned, and it will offer lower fees and more branches.
And the other reason it can be so much cheaper is that it will use the very latest technology.
The overseas banks are all stuck with old-style computer systems that are very expensive and difficult to update to new technology.
The new bank is going to enter the market with state of the art software that is much cheaper and more flexible.
It will have more branches than any existing bank.
Branch closures in recent years have been catastrophic.
We have fewer branches per head of population than Australia has.
Yet the Australian banks put a voluntary moratorium on further branch closures over there.
The number of bank branches in New Zealand fell from 1500 in 1993 to 900 in 1999.
Then branch numbers dropped a further 12% in 1999.
I predict that the overseas-owned banks will stop closing branches now.
They won’t dare close branches when there is a kiwi bank branch about to open for business down the road.
They know that customers will simply defect to the kiwi bank.
So even people who don’t bank with the kiwi bank will benefit from it.
NZ Post already profitably operates an extensive branch network.
It doesn't have to pay for those branches all over again.
It only needs to cover the marginal cost of the banking operation.
That is how the new bank can charge fees that are up to 30% cheaper than the average of existing banks.
This bank will succeed.
It's business case has been put together by a very talented team.
The people who made NZ Post a leading company offering the lowest priced letters in the world.
NZ Post is a trusted and successful business.
In the thirteen years since it was established as an SOE, it has returned $468 million to the government in dividends.
They are now asking for a small fraction of that back to invest in the future.
The bank business case shows that– even on very conservative estimates – the bank will make a profit after three years.
In a decade it will develop into an asset worth $500 million.
If we don't do it, then we will be making NZ Post a less valuable asset.
Its traditional sources of income are declining.
It needs new sources of revenue.
The bank will offer all the main personal banking services – eft-pos, cheque books, mortgages, as well as phone and internet banking.
It's going to have a focus on family banking.
It'll provide free accounts for kids to get them back into the habit of saving.
Post Shops will open on the weekend.
The focus of this bank will be on personal service.
The other banks sometimes seem to ignore their personal customers.
They're more interested in their big corporate clients.
Last year, the seventeen registered banks in New Zealand made a combined operating profit of $1470 million.
That was up by 13% on the year before.
In other words, the existing banks are making a fortune.
I don’t mind them making a profit – you want banks to be profitable.
But the existing banks are making more money in New Zealand than virtually anywhere else in the world.
If there is room in the market for them to achieve those results, then there is room in the market for a kiwi bank
It’s not a matter of envy.
It’s a matter of recognising that there is an opportunity for more community service.
The existing banks make an average return of 25%, compared to international averages ranging between 17 and 25%.
NZ Post has a cost of capital of 11.7% - so it even profits at half the level of other banks will still add value to New Zealand Post.
Tomorrow you are going to hear a lot more about the bank.
The Government is going to release all of the advice we have received about the bank.
It won’t be much of a surprise to you.
Of course, Treasury, CCMAU and the Reserve Bank opposed the kiwi bank.
The policy establishment over the last fifteen years has advised successive Governments to sell most of our strategic assets.
They are not much likely to change their view quickly.
I take their views seriously.
But in fact the public elects political parties to make decisions.
We formed a judgment that the bank will succeed.
That it will make a difference.
We formed that judgment on the basis of the business case and the independent scrutiny that we put the business case through.
Beyond the business case, the macroeconomic case for the investment is formidable, even on very conservative assumptions.
The existing banks took $1300 million of their profits out of New Zealand last year.
Because they are virtually all overseas owned, they sent their profits back to their overseas owners.
If they want to compete with the new bank, then they are going to have to respond in some way.
Let’s say they invest just 5% of their operating profits in a competitive response to the Kiwi Bank.
That means they would invest $65 million more each year into the New Zealand economy.
In other words, every year they would return about as much to New Zealand as the entire equity injection into the new bank.
So if we look at the New Zealand economy as a whole, competition from the new bank means more money circulates in the New Zealand economy.
As an aside, that calculation reveals the true, daunting cost to New Zealanders of the sale of our most strategic assets over the last fifteen years.
The loss of profits from formerly publicly-owned enterprises has been an enormous drain on the New Zealand economy.
The real issue is whether New Zealanders are likely to switch to the new bank.
That decision is up to individual New Zealanders.
But the evidence is pretty positive.
174,000 New Zealanders already switch banks each year.
New Zealanders like the idea that their bank will be part of their local community.
People feel good about the idea of banking with a publicly-owned New Zealand bank.
They feel even better when they find out it charges lower fees for full banking services.
The Auckland University Business School released a survey of bank customer satisfaction with banks was last October.
It showed 53% of residential customers are currently satisfied with their bank, down from 68% in 1998.
58% of respondents felt that not all New Zealanders have access to reasonably priced banking services.
17% of residents surveyed are currently considering switching their bank
About 40% said they would seriously consider leaving their bank to switch to the kiwi bank.
Another survey found that the main reason given by supporters of their bank was simply support for New Zealand ownership.
Lower charges were cited by 17%.
Better service by 12%.
Ten per cent said the kiwi bank would provide better and more personal service and nine per cent wanted more branches in smaller communities.
The bank is popular in rural and provincial New Zealand.
But what surprised me is that the area where the bank is most popular is metropolitan Auckland.
You might be surprised to hear that there is so much public support for the bank.
The bank presents a problem for the Opposition.
The Act party says it wants to sell the bank.
National's leader Jenny Shipley says she wants to sell it.
But National's finance spokesperson Bill English says there hasn't been a decision on that.
I have a question for Mrs Shipley.
If she is going to sell the bank, how could she do that without selling NZ Post?
Is she going to amend the State Owned Enterprise Act and start telling SOEs what to do with their businesses?
Because if she wants to sell or close the bank, she will have to direct the independent board of NZ post to direct the independent board of the bank.
The Opposition has a credibility problem.
The Alliance is committed to it.
We promised it before the election and we have delivered.
The bank is one part of our vision for the future.
Our vision is one where the whole community has a role in building for the future.
We need well-run public enterprises where the returns go to the whole community.
We need to put back the emphasis on service.
We need to take a look at the needs of New Zealand as a whole.
And we need to restore the belief that New Zealanders can succeed at anything we want to.
Governments over the last few years have allowed communities all over New Zealand to lose their social services.
Hospitals, schools and banks, to name just a few.
Not one member of those Governments was ever brave enough to show up at the closing ceremonies and take credit for their work.
I’m looking forward to opening a few bank branches.
I promise you – I am looking forward to taking credit for my work.