Story: Banking and finance

Page 6. International banking connections

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New Zealand’s banking system is connected to the international system through:

  • the foreign ownership of most of the country’s banks
  • the importance of international trade and its financing to the New Zealand economy
  • the dependence of local banks on getting funds from overseas to sustain their lending.

Foreign ownership of New Zealand banks steadily increased from the 1980s because, with deregulation, many of the locally-owned institutions sought overseas owners to be more competitive. Access to technology and knowledge was a factor in this, but more important was the additional capital strength that banks gained through such investment.

International trade links

International trade has been assisted by the extent of banks’ international networks, which are much more readily accessible for banks that are already operating in multiple countries. The growth of Australian ownership of the New Zealand banking sector in particular has reflected the close economic linkages between the two countries. This was a specific reason for the entry of the National Australia Bank and the Commonwealth Bank of Australia (when it acquired a majority shareholding in ASB in 1989) into the New Zealand market during the 1980s.

Kiwi banking

Both TSB and Kiwibank trade on the fact that they are New Zealand owned. TSB highlights the fact that ‘in 1996, we became the only 100% New Zealand-owned bank’ while Kiwibank, which was set up by the government in 2002, describes itself as ‘a little Kiwi-owned bank taking on the Aussie banks’. 1

Overseas funds

The funding that overseas residents provided to New Zealand banks was one of the most important linkages between the New Zealand banking system and international markets. Deposits from New Zealanders have not been enough to fund the growth in the banks’ lending, and further funding from international investors has been necessary. Some of this has come through the foreign-owned parents of New Zealand banks, and it is probable that this funding would have been much more difficult to obtain if the banks borrowing these funds had not been foreign-owned.

Moreover, the banks have been able to borrow money in New Zealand currency or, if it has been in foreign currency, it has been able to be converted to New Zealand dollars at someone else’s risk. This has meant that banks have not been exposed to the risk that the value of the New Zealand dollar might decline, exposing them to foreign exchange losses.

Footnotes:
  1. ‘The story of TSB Bank,’ http://www.tsb.co.nz/about/index.php (last accessed 29 July 2009); ‘More about us – Kiwibank,’ http://www.kiwibank.co.nz/about-us/more-about-us/ (last accessed 29 July 2009). Back
How to cite this page:

David Tripe, 'Banking and finance - International banking connections', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/banking-and-finance/page-6 (accessed 23 September 2019)

Story by David Tripe, published 11 Mar 2010