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Home / Business / Economy / Official Cash Rate

Cullen says Kiwibank success more than commercial

NZPA
5 Sep, 2006 02:55 AM4 mins to read

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Kiwibank's success should be measured in more than just straight commercial terms, Finance Minister Michael Cullen said today.

State-owned Kiwibank has reported it more than doubled its June year net profit to $15.8 million.

The bank was set up as part of Labour's deal with the Alliance Party to form
a government following the 1999 election.

Dr Cullen was sceptical about the investment needed at the time, but said today he was not surprised by the bank's commercial success.

"What has been particularly pleasing is... the level of public support which has been very high... but also the impact it has had on the other banks in terms of fees," Dr Cullen said.

"Undoubtedly Kiwibank paid back its government investment quite early on, in some senses, in terms of its impact on the public banking fees."

Kiwibank's chief executive Sam Knowles said today the profit figures were better than expected, which he attributed partly to the underlying desire of New Zealanders to embrace a "New Zealand value bank".

In the year to June, loans and advances increased 66 per cent from $1.57 billion to $2.61 billion, matched by a 66 per cent rise in retail deposits from $1.43 billion to $2.38 billion.

The number of customers who had joined the bank increased to more than 450,000.

Other banks were losing customers to Kiwibank, and having to reposition their products and forgo profit, Mr Knowles said.

"The key message there is clearly having a vigorous competitor, competing on value, has led right across the market to reductions for consumers and clearly over time we would expect to see reductions in profits in the bigger banks."

Kiwibank did not believe the level of profitability of its competitors was either desirable or sustainable long term.

Total operating revenue in the June year was $150.3 million from $111.3m a year earlier.

Shareholder New Zealand Post's equity at the end of the year was $172.4m from $121.7m at the start. The increase came from retained earnings and $35m of new shares bought by NZ Post during the year.

"The shareholder continues to invest in the bank ... around about the rate of $20m every six months, and that's required to support the current level of loan growth," Mr Knowles said.

"As our profits increase, we will expect to be self-sustaining, but it's still a couple of years away ...

"Clearly once we're self-sustaining then we can pay dividends."

Standard & Poor's Rating Services said that despite Kiwibank's strong asset growth, with total assets up 65 per cent to $3.1 billion as at June 30, there had not been any deterioration in the performance of the bank's loan assets.

The ratios of loan losses to average customer loans and nonperforming assets to average customer loans remained extremely low, at 0.09 per cent and 0.03 per cent respectively.

"These ratios are extremely low by domestic and international standards; nevertheless, as most of Kiwibank's loans have been written in the past two years, the bank's loan portfolio remains relatively unseasoned and untested in an economic or property market downturn," Standard & Poor's said.

As Kiwibank's expenses were now spread over a larger base, the noninterest expenses-to-revenues ratio had improved to 82 per cent in fiscal 2006, from 88 per cent in the previous year.

But that ratio remained significantly higher than that for most other financial institutions in the Pacific rated by Standard & Poor's.

Today Mr Knowles said Kiwibank had maintained its momentum, signing up more than 2000 customers every week.

"At a time when there is some nervousness in the investment community, Kiwibank has increased its market share, particularly in the high-interest online call account market."

Business banking had continued to grow with high quality lending and a very competitive fee structure for small to medium-sized businesses, he said.

At the end of the financial year, Kiwibank had nationwide representation with 15 business banking centres in 10 cities.

During the year Kiwibank formed a partnership with Citibank to provide a full range of international accounts and services for Kiwibank customers.

Progressive leader Jim Anderton, who convinced sceptical Labour ministers to set up Kiwibank, said he was pleased the "little battler" bank was proving the critics wrong.

"They hoped Kiwibank would fail because it would prove their theory of private sector superiority over public sector services wrong," he said.

- NZPA

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