Saturday, 14 August 2010

Profits are a good thing

Thanks to BK Drinkwater for point me towards this article from the New Zealand Herald. In it Ralph Norris argues that Kiwibank's current capital constraints are its own fault because it had not generated enough capital internally from its own profits. The article states,
Kiwibank had essentially undercharged for too long and was now reaping the fruits of not being profitable enough, Norris told Radio Live's Andrew Patterson.

"The situation for any business is that if you're undepricing your products then you're not generating enough capital to grow your business.

"There's always the balance of getting your pricing right in order to make sufficient profit to generate capital within the business," Norris said in the interview pre-recorded last week in Sydney.
In other words if you don't maximise profit you can not grow your business. This of course may not be a problem for Kiwibank as it can steal the capital it needs from the taxpayer, assuming the government is that stupid. Kiwbank needs to be put on a truly commercial footing where it can't get capital from the taxpayer. How to bring this about? Privatise the bank.

Later in the article Norris is quoted as saying,
"Kiwibank introduced a more parochial effect into the market. New Zealanders looked at Kiwibank as a New Zealand institution and the other banks have had to clearly show that they are committed to the NZ market and New Zealanders," Norris said.
That is to say, Kiwibank has introduced a xenophobic element into the banking industry.

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