On Wed, 21 Aug 2024 20:54:15 +1200, Crash <
[email protected]d>
wrote:
On Wed, 21 Aug 2024 17:03:46 +1200, Rich80105 <[email protected]>
wrote:
On 20 Aug 2024 22:27:12 GMT, Gordon <[email protected]> wrote:
On 2024-08-20, Crash <[email protected]d> wrote:
On Tue, 20 Aug 2024 20:33:34 +1200, Crash <[email protected]d>
wrote:
So two areas of concern here.
The first is to enable Kiwibank to take on the big foreign-owned banks >>>>>by making access to more capital available. Great idea, but why just >>>>>Kiwibank?
Kiwibank was never established because of a sound business case that >>>>>justified it. NZ Post had no plans to do this. The Jim Anderton >>>>>party (also know as the Alliance) got this into a >>>>>confidence-and-supply agreement with Labour after the 1999 election. >>>>>NZ Post was tasked by the Labour government of the day with >>>>>implementing a political decision.
There are a number of small NZ-owned banks - TSB, Heartland and the >>>>>Co-operative bank to name just a few. If the Government is going to >>>>>take actions that will allow NZ-owned banks to take on a 'disruptive' >>>>>role then all Kiwi-owned banks should have the opportunity to bid for >>>>>this.
Lastly the Government banks with Westpac. It is simply hypocritical >>>>>to go down this path without offering a bank that wishes to become >>>>>'disruptive' with the option to win government banking business as of >>>>>right if they can demonstrate that winning that business is crucial to >>>>>their ability to get to the scale required to be 'disruptive'.
I should have been clearer on this: that the Government should offer
to end its contract with Westpac (when any current contract expires)
in favour of a NZ-owned bank that can demonstrate a capability to meet >>>> the Government's needs.
That would mean that the Government would be Making NZ First, or making NZ >>>great again.
I suspect that the Westpac deal is probably a product of history.
Yes it is. It was initially set up during the days of Databank - which
was set up by the trading banks to provide a single clearing system, >>processing payments overnight, so that banks received data relating to >>themselves - both inwards and outward payments. Administratively, it
was appropriate that the government use that system for payments from
and to the various government entities - I suspect transactions that
are not related to the NZ banking system, such as those to and from >>overseas, and transfers between government departments, are handled >>directly by the Reserve Bank. So all that is happening is that the
Reserve Bank will be providing the NZ banking system with data, and it
is convenient to use one of the trading banks for that purpose. I >>understand that Westpac set up a small department to handle issues
relating to that client - the only difference from normal trading
being that the Government has in effect infinite trading limits.
Having set up their systems, a change in bank for that purpose would
just involve the cost of setting up a new small team in another bank.
The government does not need other banking services - they have the
Reserve Bank and Treasury, and each department or operation unit has
its own accounting team.
So ending the contract with Westpac would have negligible impact on
the banking system - it gives no competitive advantage to Westpac.
That is incorrect. The scale of transaction volume from Government
payments gives the incumbent a significant business advantage. If the >Government was to bank through Kiwibank, for example, the transaction
volume (and associated revenue) would be significant to them.
Sorry but no. The government transactions, inwards and outwards, will
add to near zero. This is a computerised system - and that system will
add all the inwards transactions and outwards and then add a balancing
deposit or withdrawal. Think of where a bank makes money. If you
deposit a large amount in a check account you will receive no interest
on that deposit, but put a large enough number of people doing that
together, and the bank will know from experience that a certain level
of those deposits over all customers will be there tomorrow, next week
and most likely next month or next year. Most people for example keep
a minimum amount in their current account so that payments for normal
living will not bounce - that may be anything up to a few thousand
dollars. They do not get interest on that money, but they can pay for
small purchases without a credit card surcharge without it being
rejected. The bank can therefore invest a little of fairly steady
minimum sum kept at call and make a profit. By invest, I mean lending
to others - possibly through overdraft facilities or short term loans (overdraft) to individuals and businesses. Those activities provide
profit to the bank, but the government contract provides none or very
little.
Government may lend to banks - if inter-bank lending is insufficient
for a particular bank, the Reserve Bank will provide specific lending
to assist the bank - that will be at a cost. I suggest to you that the government would not want to mix governance and reserve lending
activities with their daily transaction processing - that is one
reason why they would try to balance inwards and outwards processing
on a daily basis.
But you are correct that there is a small competitive advantage to
Westpac in providing this administrative function for government. It
comes from the reality that many do not understand the nature of the relationship - all people "see" is that "the Government banks with
Westpac"! What they do not see is that Westpac does some
administrative work - but has to cover that work with the agreed
contract fees. So there is reputational benefit through ignorance of
the nature of the contract, and I suspect that is not trivial - it
probably keeps the fee agreed between the bank and government lower
that it otherwise would be. For another bank however, setting up a
similar arrangement has costs - they probably would not want to do it
at the fee Westpac charge, so it stays with that Company.
So back to how to best use Kiwibank as a disrupter to the major
trading banks to get them to provide services at a lower cost to New >>Zealanders. Some of the small banks do have lower costs / better
returns than the major trading banks. Each of TSB, Heartland and the >>Co-operative bank probably offers higher interest on term deposits
than the majors from time to time; TSB was known at one time for
having lower admin charges but I do not know whether that is still
true.
But the obvious way to seed a disrupter is to give at least the same >>opportunity as the majors to raise additional capital. The government
can borrow at less than anyone else - they can afford to invest in
shares in Kiwibank knowing that they can get a reasonable return on
capital with lower expectations than an offering to the public - and >>without locking the bank into having its top priority to provide >>shareholder return. A deep pocket shareholder can tell them to go for >>market share but with a lightly lower expectation of shareholder
return. this is not being unfair to the other banks - if they were
not gouging higher returns than they do in Australia there would be no
need for a disrupter. Kiwibank is in the best position to be that
disrupter - the other smaller banks are either niche players or are
too small - Kiwibank is at the stage where it can be seen to offer >>competitive mortgage rates for example provided it has the capital to
back those loans. And the government can make it clear that all it is >>looking for is enough market share to keep the Aussie banks from
taking more from NZ clients than they do in Australia - still making a
fair return on equity, but yes in competition with a true NZ bank with
a shareholder that is just as supportive as the shareholders of the
other banks.
New Zealand has made a sizeable investment in Kiwibank; what is now
needed its to let them be the disrupter they were created to be - now
is the time to set them up to be able to provide a return on
investment on behalf of their shareholders and their New Zealand
clients.
Kiwibank was created because of a political accommodation between
Labour and the Alliance - much the same as National is now committed
to allowing ACT to bring a Treaty Principles Act before Parliament.
If we are to introduce Government subsidies to NZ-owned banks to allow
them to compete at scale with banks with offshore ownership then those >subsidies should be available to all NZ-owned banks - not just
Kiwibank.
I am not sure that subsidies are being considered - to be a disrupter
probably requires accepting slightly lower profit in the short term -
one reason for that may be to gain market share and hence
administrative efficiencies. For petrol retailers, undercutting on
price for self-service pumps has been quite successful, and probably
led to lower profits from the 'full service" service stations (and as
a result there are fewer of those full service stations around). But
where possible even Gull, Winstones etc will charge higher prices than elsewhere when possible - hence well publicised "high price" small
towns where it may be worth driving 25km to get a fill up.
The government can legitimately tell Kiwibank that they will accept
lower profit for the next period to enable the bank to deliberately
seek higher market share - they can do that as a sole shareholder, but
if the bank is part privatised and shares listed on the stock
exchange, that gets harder - by law the Directors would have to seek
to maximise the return to all shareholders, and that is exactly what
has led to the electricity generators seeking increasing dividends /
shareprice rather than long term investment in generating capacity.
Ownership of Kiwibank is not a subsidy, but it does offer the ability
for strategic competitiveness in the interests of a truly competitive
market. We do not have such a market in banking at present. Our
problem is that none of the major banks are prepared to forgo short
term profit for longer term market share - we do not have real
competition in that market. If Government is taking all the risk
with Kiwibank, they can seek market share and long term growth over
short term profit and continued lack of growth. Real competition over
a cosy arrangement by Australian owned banks, for whom New Zealand is
not their primary interest - they are happy to achieve higher profit
margins than they are able to in Australia. Kiwibank was created to be
the 'disrupter' that was needed when it was established - it is now sufficiently large to be able to be allowed to be that disrupter - to
seek increase in capital value through market share. Selling part of
it off makes those actions much more difficult.
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