Towards a kiwi bank
Hon Jim Anderton Speech Notes
Address to WEA
59 Gloucester Street
A year ago the Alliance was erecting election campaign hoardings. Some of them promised Our Bank…Opening Soon.
The Alliance policy was developed after looking closely at the way the large overseas-owned banks were operating. 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.
And 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.
All this while profits were sky-rocketing. Overseas-owned banks made a profit in New Zealand of sixteen hundred million dollars last year. Thirteen hundred million dollars of that was repatriated overseas.
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. They also confirmed that they would have to consider seriously keeping branches open if they faced competition from the kiwi bank where otherwise they might easily have closed them.
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 there were a great many other New Zealanders who wanted better service. And above all, people were saying that they wouldn’t mind paying bank fees so much if they knew the profits would be 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. Hundreds of NZ Post outlets were already hooked up with computers to provide complex financial services. 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.
It’s fair to say there were sceptics. People who doubted a publicly-owned New Zealand bank could be achieved. Others who felt that it wouldn’t provide any advantages over existing banks.
When I became Deputy Prime Minister I got to work with New Zealand Post.
It’s a coincidence that at about the same time that we were developing a people’s bank in New Zealand, Tony Blair’s government in Britain was working on a very similar project.
The Blair Government has decided that welfare benefits are to be paid only through bank accounts – as we do here.
The problem was that they couldn’t ask beneficiaries to pay high bank fees. Nor could they require Britons to use banks in towns where banks had closed and banking services withdrawn.
Britain also faced the problem that British Post needed new business opportunities. And so the Blair Government has decided to establish what it calls a ‘Universal Bank’, using the British Post branch network.
The idea is strikingly similar to the one this Government is examining.
Some months ago Cabinet approved the idea in principle and asked New Zealand Post to prepare a detailed business case.
That has now been done and it will be presented to Cabinet early next month.
NZ Post has discussed the business case with me and with my Cabinet colleagues Michael Cullen and Mark Burton, the Minister of SOEs. I can’t tell you too much just yet about the range of banking services that will be offered, the costs or how the set up costs will be funded.
What I can tell you is that there is a compelling case for a kiwi bank.
I do want to take the opportunity to tell you about the principles that will make a kiwi bank worthwhile.
Foremost is that many New Zealanders want the service. When we started work on the bank I guessed that the idea would be most popular in those rural areas that that had lost the most services. In-depth market research has certainly shown that the idea 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.
New Zealanders like the idea that their bank will be part of their local community. The fees it charges are used to provide services in their local area. Its profits are used to help the local community. That is a boost to communities everywhere.
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.
How can that be? Our critics claim that the bank will be subsidised. But the reality is that overseas-owned banks are making sixteen hundred million dollars a year in profits in New Zealand. That suggests to me that there might be room in the market for a bank that charges less.
I’m not saying it will be spectacularly profitable from its first day. I would be worried if it was. If it was,it would almost certainly be charging too much. But all the evidence that has been gathered shows that it can reach profitability within a very acceptable time.
NZ Post has particular advantages. The other banks have to pay for their entire networks from just their banking operations. NZ Post already has a strong branch network. The fees it charges need to cover only the marginal cost of providing banking services. They don’t need to pay all the fixed costs all over again.
Not only that, but the old banks are going through the process of changing from old-style banking to more modern systems. It is a difficult process for them. A new bank can be set up with the most modern banking systems from the outset. The complex financial software and so on can be purchased almost ‘off the shelf’. The network can be configured and ready from Day One.
I anticipate that the positive effects of a kiwi bank will be enjoyed by many New Zealanders – including those who choose to stay with the overseas banks. That’s because those banks are certain to make some kind of competitive response. They will cut their fees for their customers too.
That has huge benefits for the New Zealand economy. Let’s say just one sixteenth of the profits the overseas banks reaped last year were reinvested in New Zealand in lower bank fees and improved services. Then the benefit to New Zealand would exceed the entire budget of Industry New Zealand.
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.
In addition there will be much better service at the local level. There are fewer than nine hundred bank branches left in New Zealand. That is barely half the number there were
The entry of New Zealand Post into the banking market will increase the number of branches significantly from the very first day.
Governments over the last few years allowed communities all over New Zealand to lose their social services, like hospitals, schools and banks.
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.
A year ago, I set out with a straightforward assignment: Set up a publicly-owned New Zealand bank with branches all over New Zealand, offering lower fees than the existing overseas banks, do it within a year and make sure that the bank will stand on its own feet.
The impossible we do daily. Miracles take a little longer.
But I am very confident we are going to do it.
I am confident that there will be real benefits to New Zealand.
And I am confident that New Zealand of all income levels will join the bank because they want the personal service, local commitment and lower fees than they are getting now.
Not bad for another day at the office.