Only last week, Mr English prompted speculation on the idea of partially floating Kiwibank, one of 18 state-owned enterprises (the bank owned by New Zealand Post) and 72 Crown research institutes which could become vehicles to raise cash for the debt-laden Government.
In a surprise announcement on Tuesday, the Canterbury Building Society, Southern Cross Building Society and Pyne Gould Corporation subsidiary Marac Finance announced they proposed to merge and start a "heartland" bank, with combined customers of about 70,000 and $2.2 billion in assets.
The three institutions are looking at options to have up to 70 branches nationally, and pending several regulatory approvals, would ideally apply for a banking licence by mid-2011.
Mr English highlighted the Heartland group had to pass several non-government "regulatory hurdles" and "meet stringent tests" when applying for a banking licence, but otherwise he welcomed the proposal for a small new bank.
"There is an opportunity here for smaller institutions with a local feel.
"People have got to be able to borrow, for growth, especially the smaller businesses," Mr English said in an interview in Dunedin yesterday.
"We want a financial system meeting the needs of the economy, from large banks through to smaller institutions [handling] riskier lending or more specialised lending," he said.
He would not be drawn on investor reaction to a Heartland bank; with recent tax disincentives the Government is encouraging investors to move away from property and invest in more productive sectors of the economy.
"[We are] making property a bit less attractive.
"People are wary and careful of where to put their money after the finance company losses, and they are unsure of the sharemarket," he said.
He set aside speculation the Heartland bank would be operating in direct competition with Kiwibank, which already has assets of more than $12 billion, saying competition already existed in the marketplace with the presence of SBS and TSB.
"The more [competition] the better ... and it would be locally owned," Mr English said.
Mr English would not be drawn on further speculation the Government was lining up some of its stable of SOEs and CRIs for sale.
He reiterated National's stance, and election promise, that there would be no sales during the National Government's first term, but Prime Minister John Key was "tyre kicking" and "looking at options" in regard to the SOEs, he said.
Mr English said there was $220 billion in state-owned assets and the Government was reinvesting about $6 million per year in them, and expected to their overall value to grow $34 billion over the next four years.
The "reinvestment" was in order to "lift performance, expand and renew assets", such as schools, prisons, hospitals, the electricity grid and roading and infrastructure, Mr English said.
On average, SOEs delivered a 2% return on capital as opposed to an average of 4% return from listed companies, analysts have said.
On whether the Government had a position on retaining a majority 51% stake in SOEs and CRIs the event of any sale, or whether the Government had a view on the prospect of institutional investors swamping small investor stakes, Mr English would only say it was too early to comment, and that the Government was still "looking at the options".
State Owned Enterprises Minister Simon Power, who appeared before Parliament's finance and expenditure select committee yesterday, said he had not requested or received any advice about selling Kiwibank, NZPA reported.
When grilled by Labour's Clayton Cosgrove on what advice he had received, Mr Power said he had got no advice either on future sales or rationalisation of SOEs.
"An initial discussion is going to be required as to whether there's going to be any change in policy or whether it's worth having a further discussion about a change in policy.
"Remember there's nothing on or off the cards here.
"It may well be that there is no change to policy."
