Kiwibank ads 'reprehensible'

State-owned Kiwibank's advertisements putting down Australian-owned banks are "reprehensible and outrageous", according to former Bank of New Zealand chairman Kerry McDonald.

Kiwibank also has an unfair advantage through an effective government subsidy and is the most "unsatisfactory part of the banking equation", according to Mr McDonald, who stepped down as BNZ chairman last month.

Kiwibank's television ads denigrated the big banks for being Australian-owned. "That is outrageous."

Kiwibank was government-owned, but Australia is New Zealand's biggest trading partner and main ally. "How do you think an Australian businessman feels, staying in New Zealand and seeing the Kiwibank ads?"

New Zealand was the smaller and more exposed partner in the relationship.

Kiwibank chief executive Sam Knowles said calling the Kiwibank television campaign reprehensible and outrageous seemed to be "more than a little excessive".

"The advertising campaign is intended to be fun and is clearly a spoof with an invasion of the beaches, hints of an underground resistance movement and a hostage who is clearly not in any danger or under any threat."

Kiwibank is signing up about 2000 customers a week and it has about 650,000 clients, though its market share remains relatively small at 6.3 per cent. "I'd expect that an Australian businessman would view the advertisements as being amusing and that here was a small but cheeky New Zealand business standing up against its bigger competitors."

Mr McDonald said there was always a price war between banks over interest rates, and now was no worse than in the past. He thought competition from TSB and SBS as locally-owned banks was "fantastic, and I hope they succeed magnificently".

"It is excellent to see TSB and SBS competing aggressively that is good for the market, but Kiwibank leverages off non-bank subsidies in its over-the-counter business." Effectively, Kiwibank was getting a government subsidy.

Mr McDonald said he supported Kiwibank being in the market, but it should operate on the same basis as other banks. It was not adding to the market, and was able to leverage off over-the-counter services and cross-subsidise its deposit business.