The Green Party wants to spend $100 million on Kiwibank so it can go to battle with the commercial banks and pass interest rate cuts on to mortgages.

Party co-leader James Shaw unveiled the policy on Sunday, saying the government had limited the state-owned bank's ability to compete.

The Green's Kiwibank policy:

  • Inject a further $100 million of capital into Kiwibank to speed its expansion into commercial banking
  • Allow it to keep more of its profits to help it grow faster
  • Give it a clear purpose to lead the market in passing on interest rate cuts.

The $100m injection would allow Kiwibank to switch from being a retail banker to a full commercial bank. It could then compete with Australian-owned banks ANZ, Westpac, BNZ and ASB, which control 87 per cent of New Zealand's banking industry.

"New Zealanders could be getting better interest rates no matter who they bank with if Kiwibank was allowed to properly compete with the big four Australian banks," Mr Shaw said.

Last month the official cash rate was dropped 25 basis points to a historical low of 2.25 per cent. However, three of the four big banks passed on just 10 basis points to their mortgage rates, the Greens say.

They calculate a first home buyer in Auckland with a $500,000 mortgage could save $690 per year, meaning they pay off their mortgage earlier. Mortgage savings alone translate into savings of $312 million per year across the economy. "That's a massive saving for NZ Inc," Mr Shaw said.

"Promoting greater competition in the banking sector is a better option than talking to the banks (National) or threatening legislation (Labour) to force banks to pass on interest rate savings to borrowers," the Greens say, describing the Australian owned banks' profits as "the single biggest capital drain in our economy."

They also note  ANZ, ASB, BNZ and Westpac, combined, control 87% of New Zealand’s banking industry, a scenario credit ratings agency Standard & Poor's recently described as "oligopolistic."

Labour leader Andrew Little said he would not rule out legislating to force banks to pass on cuts by the Reserve Bank, after some banks failed to fully respond to a cut to the OCR to a new record low of 2.25 per cent.

But Prime Minister John Key said the Greens' policy to drive KiwiBank to cut lending rates would be dangerous, saying he did not support the idea, as the bank would be asked to make "non-commercial loans" - putting it in a weak position.  He said the Greens were using a state-owned enterprise (SOE) to bring about a policy goal.

"But to do that would be highly dangerous, because what you will end up doing is being in a position where you're effectively asking them to make non-commercial loans, and potentially non-commercial returns."

Mr Key said that would be "very poor public policy" and could lead you to a situation where the bank had to be bailed out.

Sources:

NZCity | Otago Daily Times | Interest.co.nz | RadioNZ