Photo: Kiwibank
Cabinet has given Kiwibank the green light to start raising up to half-a-billion dollars in capital after several months testing the market for interest.
In December, the government directed the bank's parent company Kiwi Group Capital (KGC) and Treasury to explore the possibility with local KiwiSaver funds and investment groups.
In a statement, Finance Minister Nicola Willis said KGC had since reported back that there was "sufficient interest" to proceed.
"Allowing Kiwibank to raise up to an additional $500 million is the first step towards giving Kiwibank access to the capital it needs to truly compete with the big four Aussie banks, while retaining its intrinsic New Zealand identity," Willis said.
Nicola Willis. Photo: RNZ / Mark Papalii
"Advice to the government is that an additional $500m of capital could support up to $4 billion of business lending or $10b of home lending."
The Commerce Commission has previously found that New Zealand's four largest banks do not face strong competition when providing personal banking services.
Kiwibank now has until the end of June next year to complete its capital raise, subject to ministers' approval.
Willis reiterated an earlier assurance that the government would not publicly list Kiwibank on the stock market without first seeking an "electoral mandate".
She said the government had approved measures to safeguard the bank's New Zealand identity, including ensuring it remained majority-government owned and with a majority of its directors based in New Zealand.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
