Growing Kiwibank in need of cash

State-owned Kiwibank yesterday made good on its promise of a profitable third year, boasting a $7.2 million surplus on the back of strong growth in lending and deposits.

But chief executive Sam Knowles said the bank's accelerating growth meant it would require further cash injections from its parent, NZ Post.

"We said we'd be in profit in the third year and we've achieved that," said Knowles.

The June-year profit was a turnaround from last year's $490,000 loss and "right on target".

In fact some parts of the business had exceeded expectations, he said.

"We've continued to grow at a rate of about $500 million in terms of the portfolio and balance sheet but profit growth has been a bit faster than that because as we grow bigger, we're recovering some of our fixed expenses."

Deposits had grown by $460 million to $1.4 billion while lending increased to $1.57 billion from $1.04 billion a year earlier.

Kiwibank was initially hammered last year in the BNZ-initiated mortgage price war, but Knowles said growth in lending had subsequently recovered. He expected the bank's mortgage book to grow even faster in the year ahead.

"At the moment clearly there's not as much competition on price as there was at this time last year.

"As the market slows a bit our competitors have to make that call whether they are going to compete profits away or focus on sustaining profit growth. That's very positive for us, we've always said we're about value great price and good service.

"We'd expect to sustain and in fact enhance that level of growth and target higher levels of profit, asset and deposit growth in the year ahead.

But that expansion will come at a cost to its parent. Kiwibank received $15 million in capital from NZ Post in the June 2005 year and Knowles said the bank would require more.

" As we're still growing very fast and our profits will not be strong enough to fully fund our growth for quite a while, we expect more capital from our shareholder. That's been discussed and agreed with them."

Knowles refused to go into detail but said the amount would be "what's required to keep our capital ratios and growth going".

The bank added 100,000 new customers over the year, taking it to 350,000 in total.

Knowles said the bank was pleased that its customer satisfaction level, at 92 per cent according to a recent survey, was well above the industry average of 82 per cent.

Kiwibank's net interest income was $36.29 million and its other income was $75.04 million (consisting of fee income of $34.69 million).

Kiwibank's cost to income ratio was 89 per cent against the the market leader's figures which are in the low to mid forties.

But David Tripe of Massey University's Centre for Banking Studies said Kiwibank's close relationship with its parent made it "distinctly challenging" to compare its performance with that of its rivals.

"One of the big problems with the Kiwibank financials is all the stuff that has been shunted back and forth from NZ Post."

"Neither their non-interest income or their non-interest expenses bear any relationship to anything that's earned by any of the other banks in the market."

Progressive Party leader and Minister of Economic Development Jim Anderton, who was instrumental in the establishment of the bank, was pleased with the result.

Kiwibank was "a shining example of a well-run, nationwide bank" that was "an asset to the country and must be preserved for the future".