Kiwibank has been given the green light by the Government to raise $500 million from institutional investors with an IPO in 2028 being contemplated.
Cunningham says it was the only recommendation from the Commerce Commission’s study into bank competition that can make any meaningful difference.
“It will be impactful over time on competition. We've had the evidence of that already. About a year ago Kiwibank had a competitive interest rate slate at the time the main banks were marching out margins to a wider level. Kiwibank was swamped by borrowers and had to stop.”
Part of that was access to capital, part of that was access to staff because of the volume that was coming its way it needed more staff, Cunningham says.
What that demonstrated, he says, was that a player who has fairer pricing, at times, can win market share.
The capital raise will act as a catalyst for increasing competitiveness on the lending side, according to Cunningham.
He doesn’t see Kiwibank’s access to more capital will change the dynamics of growth in the market, its impact will be on price in the market.
There's always ample money for lending, so it becomes more of a price equation – what is a fair margin on lending?
The capital raise is a good start to providing more competiton. There will eventually be two sources of capital for Kiwibank. “To start with private enterprise and then listing on the stock exchange to bring in other investors. New Zealanders have indicated already they would be keen to own a stake in Kiwibank.”
Useful but not important
He says all other stuff recommended by the commission, such as sending mortgage applications to three banks is simply wrong, or other impactful changes such as open banking were already on the go.
The signal Finance Minister Nicola Willis sent to banks this week to do what they can, do what they need to increase and enable competition and the threat of regulations if they don’t is useful, he says.
“That takes in things like the wholesale arms of banks supporting providers like Squirrel, fintechs and other specialist banks getting underway. An important part of that is access to payments systems either via banks or direct access TCS accounts and arrangements for facilitating all the elements of open banking.
It's industry not putting barriers in the way, Cunningham says.
More innovation
iLender skipper Jeff Royle tends to agree, and he says hopefully it will also lead to more product innovation.
He says the four main banks are long overdue for some serious competition as the specialist lender space is not only just about price, it is also about product.
“There's nothing innovative coming out of mainstream lenders and sometimes when they do have a new product, unfortunately the regulators tend to put a dampener on it.”
He points to Westpac. “A year ago, it had a brilliant dollar for dollar refinance product, with minimal documentation required to access it. Along comes the Reserve Bank with its new DTI tool and one of the side effects was Westpac had to modify its product. Basically, it stifled innovation.”
Royle says like so many things, new regulations can often have unintended consequences. It’s not always the banks’ fault that they can't innovate. “I sometimes think they must feel as if they're working with two hands tied behind their backs. And that's me being charitable.”
In Royle’s view, Kiwibank’s reputation for being adviser-centric and helpful can only be enhanced with a capital raise.
He says it will have an impact. “Kiwibank just seems to have a can-do attitude. “If there is a way to make a deal work, it just tends to have the attitude of let's try to make this work. The bank is not unique in that space, but it is strong in that space.”
In the adviser world, customer first is everything, Royle says. If Kiwibank gives the main banks run for their money in terms of product and pricing, that means greater options for the adviser, which means greater options for the consumer, he says.
