"It makes real sense for the Government to consider recapitalising Kiwibank. It would be a much better initiative than the national cycleway or spending money on infrastructure.
"A larger and more robust New Zealand-owned bank would benefit everyone, by promoting competition; and would contribute significantly to the economy, both in the shorter and longer term."
However, recapitalising does not seem to be on the Government's agenda.
Finance Minister Bill English said in response to a question from the Otago Daily Times: "There have been preliminary discussions about the next phase of Kiwibank's growth. That's as far as it's gone at this stage."
Kiwibank had, for some time, been considered a fringe player, and while that perception had improved, it was still not a mainstream bank, Mr Reid, the principal of Reid Investment Consultants, said.
Kiwibank's business units were small and under-capitalised, and the bank was not considered a "serious player" in the business lending market.
The bank did not have designated lending divisions, unlike the Australian competitors, who provided lending to specific sectors, such as rural.
"An injection of capital by the Government could see all of this change."
First, Kiwibank should be re-emphasised as a New Zealand Bank - a bank for all New Zealanders. With the disillusionment regarding the Australian banks currently, it would be an opportune time to promote a local bank in the market, Mr Reid said.
A recapitalised Kiwibank could consider further deals based on good solid lending practices. Many of those deals were being turned down, because of the Australian banks' aversion to the New Zealand economy, and the risk that further potential write-downs would affect their bottom line.
"As we all know, the Australian banks' profits are not spent in New Zealand, with the exception being those shareholders who hold shares in the banks. Future profits made by Kiwibank would be."
There was no reason the Government could not seek funds from the public to recapitalise the bank, Mr Reid said. Many New Zealand deposit holders were desperately seeking opportunities for cash that would provide them with capital, security and income.
The idea of investing in bonds in an entity owned by the Government would be seen as an attractive proposition.
However, there needed to be a far greater level of professionalism displayed by Kiwibank, he said.
To expect people to be discussing a mortgage while a Post Bank customer waited behind them to buy stamps was not conducive to professional standards.
Stand-alone branches should be actively sought, and given the downturn in "retail New Zealand", now would appear an ideal time to locate such premises, Mr Reid said.
Accessing staff should not be an issue, as there was a plethora of excellent banking employees looking for work.
Once a recapitalised Kiwibank was established, its presence in the mainstream would provide for greater competition and lower interest margins.
"Even more importantly, it will provide for additional capital to be deployed in loans that meet prudent lending criteria, that will assist in growing our local economy in what are extremely difficult economic conditions."
In the longer term, the Government could look to sell down its exposure on the proviso that New Zealanders retained a majority ownership of the bank, Mr Reid said.
That could take the form of a share float which would probably result in the Government achieving a more than adequate return on capital.
At a glance
• Recapitalise Kiwibank to provide competition.
• Government could seek funds from public.
• Great professionalism needed by Kiwibank.
• Share float could be ultimate goal.
