As the Government’s Australian-owned banker mulls the sale of its New Zealand operations, work to position Kiwibank to take over the sizeable contract appears to have gone into stasis

Political efforts to ready Kiwibank to take over as the Government’s banker appear to have stalled, as the Finance Minister reviews the incumbent’s ability to continue in the role following stinging criticism from the Reserve Bank.

Australian bank Westpac has held a near-monopoly over the Government’s banking services since 1989 despite political agitation for a New Zealand-owned bank to take on the job.

In 2015, the bank kept the role after it was put out to tender for the first time in more than 20 years, with several others (including Kiwibank) receiving smaller contracts for other payment services.

With Westpac’s eight-year contract coming to an end in mid-2023, the 2017 coalition agreement between Labour and New Zealand First included a commitment to “investigate growing Kiwibank’s capital base and capabilities so that it is positioned to become the Government’s banker when that contract is next renewed”.

Labour’s other coalition partner at the time, the Greens, also held a policy of injecting $100 million of additional capital into the bank so it could eventually take on the government banking contract.

In November 2018, Finance Minister Grant Robertson confirmed the Treasury had been asked to carry out an investigation into Kiwibank’s “readiness” to take on the government banking contract, with advice set to go to ministers by late 2019.

However, more than a year on from that deadline, there has been no sign of any government decision on the matter – whether to move ahead with readying Kiwibank or to scrap the idea.

A Treasury spokeswoman confirmed it had provided advice to Robertson’s office on “matters relating to positioning Kiwibank for the Government Banking Contract” in December 2019, but said the contents of that briefing had not been made public while Official Information Act requests for the document had been declined.

A spokesman for Robertson told Newsroom there had been some work on the issue since the advice was submitted, but could not offer further details.

With one major stumbling block being Kiwibank’s lack of scale, talk in early 2020 of BNZ’s multi-billion-dollar sale led to speculation the Government-backed bank could be a buyer to grow its operations; however, no such sale transpired.

Westpac mulls NZ sale

But in surprise news, Westpac itself on Wednesday said it was considering selling off its New Zealand operations.

In an update to the New Zealand stock exchange, the bank said it was “assessing the appropriate structure for its New Zealand business and whether a demerger would be in the best interests of shareholders”.

“Westpac is in the very early stage of this assessment and no decisions have been made.”

The bank said its decision-making process would take into account the impact of the Reserve Bank requiring it to address concerns about its risk governance processes.

Reserve Bank deputy governor Geoff Bascand said the bank had “experienced ongoing compliance issues with Westpac NZ over recent years”, with the most recent concerns relating to its compliance with liquidity requirements.

To ensure Westpac examined its own practices properly, Bascand said the Reserve Bank required it to produce an independent report into the risk governance processes of its board and executive management, as well as another report “to provide assurance that the actions they have taken to improve the management of their liquidity risks, and the culture surrounding it, are effective”.

Until the Reserve Bank was satisfied Westpac had addressed the issues, the bank would be required to hold a greater level of cash or assets that could easily be converted into cash.

Responding to the Reserve Bank’s announcement, Robertson said he had “asked for advice from Treasury about any impact on the position of Westpac as the Government’s banker”.

Sam Sachdeva is Newsroom's national affairs editor, covering foreign affairs and trade, housing, and other issues of national significance.

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