Thursday, 11 September 2008

why we need kiwibank

two pieces of good news today: mobil have petrol down by 6 cents a litre (about time, not enough of a reduction, and why haven't the other companies immediately followed suit?) and the reserve bank have dropped the OCR (official cash rate) by 0.5 percent.

listening to alan bollard on checkpoint, his reasoning for the larger than expected drop of 0.25 percent was to push banks to lower their rates. you may remember that the last time the OCR was reduced, banks were using every excuse they could to not drop their lending rates. in fact, you may even remember brendan donovan and bernard hickey on radio nz urging people to hurry up and fix their mortgages, because bank lending rates were not going to drop in the near future, no matter what the reserve bank did (read my earlier post for more details on their conflicts of interest).

well thank goodness for kiwibank, who today dropped all their rates immediately after mr bollard's announcement, thereby forcing other banks to do so. now just imagine if we did not have a state-owned bank that was put the interests of nz'ers first. there would be no competitive pressure on all the overseas banks to drop their rates in any significant way - in fact, i understand that most of them aren't dropping fixed mortgage rates yet.

this means that they would have increased the profits they pay out to overseas investors at the expense of " hard-working kiwi mums and dads" ie your average nz borrower. kiwis would have continued to pay high interests rates, while the banks could access money at a significantly cheaper rate.

but because kiwibank has moved to drop rates immediately, the other banks will be forced to follow. if they don't, you the customer have the power so use it. demand that your bank offer you a lower fixed rate if you're up for renewal, and if they refuse then take your mortgage to kiwibank. customers forget about the bargaining power they have in the marketplace, and if enough of them threaten to take their business elsewhere, the overseas banks will be forced to be more competitive.

but just remember that you would not have had that power, that option to move to a cheaper alternative, without kiwibank. which makes you wonder why bill english wants to sell kiwibank "eventually". this is a bank that is turning a profit, that is providing a tangible benefit to the people of this country, and he wants to sell it off. of course, he's issued a public denial, as has john key, but their underlying philosophy has always been that they want to sell and there is no doubt that they will do so if they get a second term. in the first term, all they have to do is create conditions (ie run down the bank) to justify the sale.

oh, and as a disclaimer, let me disclose that i don't bank with kiwibank, i don't have any mortgages or loans with any financial institutions, nor do i hold any shares in such. and while i'm at it, kudos to jim anderton for creating this institution.

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