By Christian Mahne reporting from Wellington, New Zealand

New Zealand, more often famed for its sheep population than its financial sector, is attempting to shake-up its banking system with a new state-owned venture.

With plans for the biggest branch network, no business customers, and a New Zealand-owned and operated focus, Kiwibank is rapidly making its mark in the retail scene.

New Zealand's towns and cities have plenty of banks, but unlike most other countries, 99% of the entire banking system here has foreign owners.

That is due to the policy of deregulation put in place by the government of David Lange in 1984.

Home grown

Into this fray has charged Kiwibank, waving the flag as a 100% New Zealand owned and operated enterprise.

Giving the customers what they want?

Its trump card is access to New Zealand Post's premises, which gives it a ready made footprint in every town, just as the major banks are cutting back their branch networks.

It is all about giving the customers what they want, says Paul Frampton - the original architect of the Kiwibank business case.

"I guess one of the things that drove the creation of Kiwibank was saying we want customers to be able to access the bank the way they want to access it. So for those people who want to go into a branch, let them go into a branch."

The 'people's bank'

Kiwibank's expansion plans are certainly ambitious.

It is planning to go from the pilot group of 7 branches to 400 in just 3 months.

The fledgling institution aims to have 165,000 customers after three years. All from an initial investment of just US$32m (�22m).

The bank uses NZ Post's premises

Owned by the New Zealand Government and pitched as a no-frills "people's bank", Kiwibank is targeting customers dissatisfied with the service and fees associated with the major players.

However, this strategy does have its risks, according to veteran bank watcher Andrew Dinsdale, author of KPMG's annual Financial Institutions Performance Survey.

"The service experience is going to be very important for Kiwibank, if they get it right, people will be comfortable, " he said.

"If they get it wrong they'll be disenchanted, as are a number of customers in New Zealand about the service experience that some banks deliver to their customers.

"So it's about getting it right at the very early stages and so far it seems to be working."

Future sale?

But Kiwibank may yet be a victim of its own success.

As a state-owned enterprise, it is vulnerable to any change of government.

Historically state involvement with the banking sector has had mixed success. In 1990, the Government had to bail out Bank of New Zealand to the tune of $320m.

Now owned by National Australia Bank, BNZ makes profits of $200m a year.

The current opposition have indicated they will look at selling Kiwibank if they win this year's General Election.

From an idea in June 2000, Kiwibank has come a long way quickly, but the project is still very much in its infancy.