Privatising Kiwibank will add to capital flight

Privatising Kiwibank will see even greater amounts of capital leave our shores in the form of bank dividends drained from our economy by the foreign owned banks, the Green Party said today.

“Over the last five years, the big four foreign owned banks sent close to 75 per cent of their profits off-shore in the form of dividend payments to their overseas owners. Only a quarter of profits were re-invested in New Zealand,” said Green Party Co-leader, Dr Russel Norman.

“If the Government was to privatise Kiwibank, the dramatic flight of capital out of New Zealand by the foreign banks would become even more pronounced.”

Foreign-owned banks make up 90 per cent of the banking market here in New Zealand. Their profit levels have grown substantially until the recent financial crisis, but even the recession hasn’t stopped the significant proportions of profit distributed as dividends. Last year, despite provisions for bad debt totalling $2.4 billion, the banks still managed to distribute 91 per cent of their net after-tax profits.

“No matter how you frame the sale of Kiwibank, it will inevitably end up in foreign ownership. These owners will also demand a similar stream of profits from their investment,” said Dr Norman.

“In the last five years alone, $9.5 billion in bank dividends have gone off-shore, fuelling our current account deficit and starving New Zealand businesses from much needed capital to fund their growth.

Last year, the Parliamentary Inquiry into Banking found that New Zealand does not have a competitive banking sector. The Inquiry found that up to 70 basis points of Official Cash Rate (OCR) cuts were not passed on to the banks' customers representing an additional $2 billion in interest costs gauged from the farm, business, and home mortgage sectors.

“Kiwibank has consistently offered better deposit rates and lower lending rates than the big four overseas-owned banks, and, by keeping their profits here in New Zealand, has fuelled a small but virtuous cycle of re-investment in New Zealand’s long-term economic prosperity,” said Dr Norman.

“Kiwibank is the only large competitor to the big banks.

“It seems surreal that soon after the banks were convicted for illegally avoiding nearly $2billion in tax, National and Act would reward them by removing their only large competitor.”

References:
Report of the Parliamentary Banking Inquiry: http://www.bankinquiry.org.nz/

ENDS

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