KEY POINTS:
Kiwibank will go to the public debt market for the first time, to secure $75 million to finance the breakneck growth which more than doubled profits in the six months to December 31.
Unlike the four major banks, Kiwibank does not borrow cash from overseas to finance its
home loans - a policy that its bonds issue will continue.
Chief executive Sam Knowles said that most of the big banks were borrowing money from overseas, but Kiwibank was "completely funding from the existing depositor base".
"That's certainly good for New Zealand," he said.
The state-owned bank, which last week agreed to buy $720 million in home loans from the Hong Kong Shanghai Banking Corporation, made a net profit of $11.37 million for the half year, up from $5.45 million a year ago.
Knowles said the bank's mortgage lending portfolio grew by $500 million to $2.9 billion.
Deposits grew even more quickly, by $900,000 to $3.3 billion, boosted by the purchase of about $300 million of Superbank deposits and the success of Kiwibank's online call account.
"That's been outstanding in terms of its growth," said Knowles. "In our view it has been taking money out of the finance company sector."
Knowles said the bank's retail-deposit-to-retail-lending ratio was better than that of any of its competitors.
"We're well cashed up for future growth."
However, as tipped by Kiwibank when it last week announced the deal to acquire all of HSBC's AMP-originated home loans and finance future AMP-branded mortgages, Knowles said the bank would tap the domestic debt market for capital to help pay for the acquisition.
Kiwibank's shareholder, NZ Post, has contributed $200 million to the bank and the rest has been financed by retained earnings.
Knowles said the bank and its adviser, ABN Amro, looked at various options before deciding on a $75 million issue of unsecured subordinated bonds, mainly to professional investors in the domestic market.
"Clearly we'll be using some of that capital to fund this [HSBC] acquisition."
Further details about the bonds, which will be rated, would be given when the investment statement is issued early next month. "This is the next logical step," said Knowles.
Reserve Bank rules require banks' mortgages to be backed with equity equal to 4 per cent of the loans.
That means Kiwibank will need new equity of about $30 million to finance the HSBC acquisition.
Knowles said the bank had "tentative plans" for further issues.
"What it does mean is that we can continue to grow and accelerate the level of growth in the years ahead through use of this option."
The balance of the HSBC acquisition, which Kiwibank and HSBC value at about $730 million, will be financed through the bank's existing programme of registered certificates of deposit and retail deposits.
Meanwhile, Knowles said the bank expected accelerated growth in the year ahead.
Growth would have "a little ramp up" in the second half of the current financial year as new mortgages written through NZ Home Loans and AMP started producing revenue.
But when the HSBC acquisition came on to the bank's books, "you'll see quite a leap in our growth in the next financial year".
The corresponding lift in profits was expected to take a year to 18 months to show up.
The bank was continuing to gain 400 to 500 customers a day.
Knowles said Kiwibank was capturing about a third of the 7 to 8 per cent of people who changed banks each year and had over 500,000 customers.