Convivial and relaxed, Jim Bolger, the prime minister of New Zealand between 1990 and 1997, is in a luxurious position: as chairman of New Zealand's young but fast-growing state-owned retail lender Kiwibank, Mr Bolger can claim to lead a bank that is not only successful, but also extremely popular.
Founded in 2001 as part of the state-owned New Zealand Post Group (NZPG), the new bank, which focuses primarily on lending to retail customers and small and medium-sized enterprises (SMEs), was borne of necessity: in a world of pervasive electronic communication and a growing number of competing international parcel delivery services, the NZPG's postal volumes have steadily declined. Boasting one of New Zealand's largest distribution networks with more than 300 shops and franchises, however, the Post Group board saw an opportunity to diversify its business lines. "The Post Group had a large footprint of post shops and a top-of-the-line, highly respected brand: the decision to offer financial services was the logical and sensible thing to do," says Mr Bolger. "So we were ahead of the curve."
Impressive growth
Kiwibank's growth so far has been impressive: by June 2004 the bank had attracted 250,000 customers in a population of 4.3 million people, while five years later it holds nearly 7% of all household deposits, 3.9% of the residential mortgage market, and 4.6% of the credit card market. Between 2007 and 2008 the bank grew its asset base by 52% according to data submitted to The Banker, boosted in part by a number of savvy deals. In 2006 the bank moved to beef up its mortgage portfolio, buying a 51% stake in New Zealand Home Loans. This deal was quickly followed in 2007 by the NZ$720m ($522.6m) acquisition of HSBC's Australian Mutual Provident (AMP)-branded residential mortgage book, which HSBC acquired when it bought the troubled Australian lender's New Zealand operation in 2003.
Kiwibank also struck a deal to take on the deposits of the ill-fated Superbank, an internet bank founded as a joint venture between Australian lender St George Bank and New Zealand retailer Foodstuffs, which went into administration in 2006. In 2007 and 2008, Kiwibank raised NZ$75m and NZ$60m, respectively, through bond issues to finance its breakneck growth and by May 2009 Kiwibank's balance sheet had hit NZ$10bn, the critical threshold for so-called 'big bank' status in New Zealand.
Marketing strategy
Eye-catching branding has also proved a critical component of Kiwibank's business strategy which, as the bank's name aptly illustrates, capitalises heavily on its unique status as a 100% New Zealand-owned institution. For Mr Bolger, who was based in Washington, DC, serving as New Zealand's ambassador to the US when he was approached by the NZPG to chair the bank, this aspect of the bank's market positioning was a deal-breaker.
"I agreed to chair the bank but I identified that it had to be a distinctly New Zealand-owned bank and [I] strongly promoted the name Kiwibank to demonstrate that." The notion that Kiwibank is the focal point for the so-called New Zealand 'Resistance Movement', as its marketing campaigns declare, is novel to say the least and serves as a not-so-subtle rebuke to the Australian-owned players that dominate the New Zealand market. "I think there was a gap in the market absolutely, and I think we've used that to grow the bank strongly," says Mr Bolger, adding with a wry smile: "I must say, it's worked very well."
Indeed, Kiwibank needs no more confirmation of its success in this regard than recent claims by New Zealand's third largest lender, Australian-owned ASB Bank, that it too is a "Kiwi bank" and has been since 1847 no less - a claim that has provoked outrage and in some cases physical protest among New Zealand's more patriotic citizens.
But persuasive marketing is only half the story. Kiwibank vigorously competes on fees and rates and is regarded as an important force for competition in the New Zealand market. And since it operates the country's most expansive distribution network, Kiwibank is able to act as a community bank reaching underserved rural areas, says Mr Bolger, who hails from a sheep-rearing family. According to Mr Bolger, Kiwibank aims to become the country's largest player, growing at about 1% of the market per year and expanding its client base beyond the SME segment to include corporates. "To achieve our goal we have to maintain or at least improve our delivery of value to the community: a [strong] name is great but customers want value from the products and services. While we promote the 'resistance' angle, if you don't have the product, the branding won't work," says Mr Bolger.
Â
Setting the standards: post groups throughout the world are looking to follow the example set by New Zealand's Kiwibank when it comes to their banking operations
Parent relationship
If being a state-owned institution has had its advantages, the association with New Zealand Post Group is not entirely straightforward, say some. The organisation was able to capitalise upon its existing infrastructure to create what has thus far proved a highly successful banking subsidiary from scratch. But in New Zealand, some analysts and bloggers have questioned the sustainability of the model, claiming that Kiwibank would not be able to stand alone without the support of the NZPG at large.
Standing independently
Mr Bolger, who also chairs the NZPG, concedes that the parent company's brand, if nothing else, provided Kiwibank with an important platform during the early days. But the bank operates independently from the NZPG and purchases services from its parent under a strict service-level agreement vigorously negotiated on an annual basis. "The ambition of the group board is to make certain that it acts independently and draws sensibly on shared services where that is appropriate and one [is not] propping the other up."
As postal revenues continue to drop, he continues, the bank has become the more financially robust of the two organisations. But while Mr Bolger does not foresee a major problem regarding the model in the near future, a large question mark hangs over the future of post groups globally, which cannot be ignored, he says. "The question of how post offices are going to operate is a big open question: how many days we should deliver?" he asks. "This is a debate about tomorrow but it's starting now: you can't continue to maintain a very large and extensive network and not have volumes going through. That's why Kiwibank complements the NZPG network brilliantly."
For this reason, Kiwibank's success will be watched closely by other ailing post groups globally with ambitions to establish a fully fledged banking outfit - the UK's beleaguered Royal Mail Group among them. In late November last year, the postal operator announced its intention to launch a so-called 'people's bank' which, while not quite a 'Brit bank', appears to owe more than a little to the Kiwibank brand strategy. But the Royal Mail Group should not underestimate the challenges, warns Mr Bolger. "It has the same raw material that we have: a well-respected postal name. But you have to have the skill." In the case of Kiwibank, says Mr Bolger, the leadership of the bank by its CEO Sam Knowles has been invaluable. "The person that Royal Mail chooses to lead will be hugely important," he continues. "The public need to be convinced that this [will be] a genuine, proper bank: they don't want half a bank, they want a full bank, they want all the services and they want them delivered in a different manner." The Royal Mail's first step, he adds half-jokingly, should be to contact Kiwibank.
Relevant experience
Although the former prime minister's time in office as leader of the centre-right National Party narrowly preceded the Asian financial crisis of 1997, Mr Bolger is no stranger to bank bail-outs or their parlous impact on government finances: on the first day of his premiership on October 28, 1990, the country's largest lender, Bank of New Zealand, collapsed amid a deepening economic malaise, forcing Mr Bolger to approve a $380m rescue package. Not only did the bail-out cripple the new government's finances but it necessarily reversed many of the prime minister's election pledges by forcing him to undertake a raft of brutal spending cuts that subsequently earned the unfortunate portmanteau 'Ruthanasia', after Mr Bolger's unpopular and short-tenured finance minister Ruth Richardson.
As such, Mr Bolger is in no doubt regarding the unpalatable tax hikes and spending cuts confronting many Western electorates. "The financial sins of this generation have been handed down to successive generations in the shape of huge mountains of debt and the cost of servicing that debt is going to severely limit the options of all political colours going forward," he says. Privatisation of state-owned assets will be inevitable, he continues, but it is critical that the governments in question use the funds raised to service the budget deficit, he argues - not to shore up politically popular spending programmes or run day-to-day government.
"When my government privatised assets, we put it all to repay debt in order to try to get our costs of servicing the debt down," he recalls. "But most countries have been privatising assets for the past two decades and most assets that are easy to privatise have been privatised," he adds. Ballooning sovereign debt is the "crucial issue" the world now faces, he continues. "So the ambition of some politicians - that the problems are over - are frankly fanciful."
