Failed IT project weighs on Kiwibank profit

Kiwibank has announced its full year result. Photo/Paul Taylor.

Lower funding costs helped to boost earnings at Kiwibank but more costs linked to its failed IT project continued to weigh on the business.

The state-owned bank saw its net profit after tax rise from $53m to $115m in the year to June 30.

But the big jump mainly reflected a poor result in 2017 after it took a big hit from its decision to quit its CoreMod IT project.

The 2018 financial year result was still dragged down by higher expenses associated with the IT project.

It booked an $8m impairment loss and incurred a further $7m in operating costs relating to the wind-down of the project.

But new chief executive Steve Jurkovich, who joined the bank last month from ASB, said this would be the end of costs associated with the canned IT project.

"This financial result signals a closing of that chapter for us."

It might be the end of the financial impact on Kiwibank but shareholders ACC, the New Zealand Superannuation Fund and New Zealand Post are said to be in a dispute over how much information NZ Post disclosed to them about the risks involved with the IT project.

Jurkovich confirmed there were discussions going on between the shareholders but said the bank was not directly involved.

He said the board had meet this week and the shareholders were very supportive of what the bank was doing and wanted it to focus on growth.

As a result it would not be paying out a dividend to shareholders this year allowing it to reinvest the money in the business.

The bank's underlying net profit rose $4m to $126m.

Kiwibank's net interest income rose $43 million to $411m while its margin also improved from1.92 per cent to 2.06 per cent.

Jurkovich said the bank had a quiet first half but things had picked up again in the second half of the financial year.

Higher revenue was driven by lower funding costs for the bank but it also said that fee income was trending lower due to competitive changes and shifts in customers' behaviour.

The bank's loans and advances were up from $17.8b to $18.3b while its deposits and other borrowings also rose from $15.98b to $16.17b.

Kiwi Group Holdings which includes the bank, KiwiSaver business Kiwi Wealth, New Zealand Home Loans and Kiwi Insurance, saw its underlying profit rise 3 per cent to $133m.

Its net profit after tax was up from $58m to $122m.

Jurkovich said the Kiwi Wealth business had been a highlight for the group with funds under management increasing 19 per cent and it receiving approval from the Financial Markets Authority to offer a digital financial advice service.