I may be wrong but . . . . I get a feeling that Big Business is making another push to get Kiwibank gobbled up into the game playing and greed of the more-market business world. And that possibility disappoints and concerns me.
Last Saturday (July 17th) the Christchurch Press newspaper published a feature report on Kiwibank in the Businessday pages, written by Roeland van den Bergh. As we’re all aware, Kiwibank was set up at the start of this decade, and in the eyes of ordinary, supportive Kiwis it had two clear primary purposes, as summarised by van den Bergh: to “look after ordinary New Zealanders and keep profits onshore”.
Through the 1990s large numbers of people were becoming unhappy at the growing fees being charged by the four main banks, all Australian owned, along with increasing profits remitted to their Australian shareholders. So . . . despite complaints from the ideologues and big players of the business world, Kiwibank was set up and initially funded by the government to provide a viable nationwide, New Zealand-owned alternative. And it has done surprisingly well, putting some pressure on the big four and reminding us of the days when banking meant financial services for ordinary people rather than speculating on world markets to foster greed and maximise profits for remote shareholders.
Kiwibank, we’ve been told, has grown steadily to the point where its market share is edging up toward the space long occupied by the big four, especially among domestic customers. Apparently it’s been working mainly on the business model that I always thought (in my naivety?) is or should be the basic operation of banks – borrowing from people with excess money (paying interest for the privilege) and lending re-packaged money to suitable people who needed it (charging interest for the service).
As van den Bergh wrote, referring also to the other main locally-owned bank TSB, “both banks fund their lending almost entirely from domestic retail deposits, while the big banks have been hamstrung by their need to borrow on international money markets, which have been frozen”.
That confirmed for me something that has bothered since last year’s financial crash – why was it such a huge problem that nervous banks were not lending to each other, causing the system to grind to a halt? Shouldn’t banks just be borrowing from savers (people and businesses) and lending to borrowers (other people and businesses)? Why do they need to spend so much effort borrowing off and lending to each other? (Apart, that is, from extracting fees for every transaction.)
Back to Kiwibank. So far so good with the Press article. Then I became uneasy as I read that as Kiwibank “grows its balance sheet beyond $10b it will have to increasingly diversify its funding to include international wholesale lending to maintain its growth.” (my italics).
Here we see again the Big Business ethic that growth is imperative. Apparently it’s not enough to just do what you do well or better, to grow organically by getting more and more customers to use and appreciate your core services. And according to the growth imperative if the growth rate is not being maintained, then it’s not enough to operate on a plateau.
Why does Kiwibank need to keep growing in size and reach, even when it may mean that its whole raison d’etre is imperilled? Ah yes, of course . . . it’s because the people pulling the strings – the government – are aligned with the business world. They’re not satisfied with providing a service that can pay for itself, grow organically, and offer the bonus of an optional, modest dividend. Forget about serving customers and retaining income within NZ, just make money for the government and its business friends!
As van den Bergh wrote, “The Government has discussed expanding Kiwibank amid calls for it to beef up the State-owned bank to help push interest rates lower.” OK, beef it up and take advantage of the bank’s ability to affect domestic interest rates, but don’t get into the same silly corporate money games with overseas markets that have caused so much grief recently to the private banking industry and society as a whole.
