Kiwibank capital injection signals move to bigger league

3.00pm

UPDATE - Kiwibank owner, NZ Post, announced a $40 million capital injection today, signalling a move by the state bank to a bigger league.

"It's now clear to us... that the future for Kiwibank is as a much bigger bank, creating much more significant shareholder value than we orginally envisaged," NZ Post chief executive John Allen told a news briefing.

"The bank will be profitable in the 2004/5 year and it is now clear to us that both its asset base and its value creation is going to be significantly ahead of what we orginally anticipated in the business plan."

Kiwibank's move comes ahead of possible major shake-up of the banking market with National Bank up for sale.

National has the largest market share with just under 20 per cent. Should, as speculated, ANZ (14 per cent) or Westpac (19 per cent) buy it, then Kiwibank could be poised to make further inroads as both those banks have had a history of high customer dissatisfaction levels.

Kiwibank began two years ago at the instigation of the Alliance Party with an $80 million injection, largely directly from the Government.

"Kiwis have flocked to the proposition we have put to them. We have seen extraordinarily strong growth," Mr Allen said.

The bank has been winning customers at 400 a day this year and now has over 150,000 on its books after 16 months of trading. The orginial business plan called for 165,000 within three years.

Kiwibank chief executive Sam Knowles said the bank was grabbing customers from other banks in proportion to dissatisfaction levels.

Kiwibank still remains a minow in the banking market with around 3 per cent of total customers, 1 per cent of deposits at $450 million and 0.8 per cent of mortgages at $500 million.

Over five years Kiwibank is looking to double its share of the mortgage market and triple it over 10 years.

The $40 million would come out of NZ Post resources and would not affect dividends to the Government. The postal company has traded this financial year well ahead of budget and last year's $21.9 million profit.

The extra capital is need to satisfy Reserve Bank asset ratio requirements. It will be paid in two tranches, the first of $22 million on September 30 and the rest a year later.

Mr Knowles said Kiwibank's assets would be significantly larger in ten years than the $2.7 billion envisaged in the business plan two years ago. The Net Present Value of the business would be at least two or three times the $75 million originally planned.

The bank now has 287 branches, more than any other bank, and intends to keep expanding its network towards 300.

There was predictable political reaction with the bank's political sponsor, Jim Anderton, now leader of the Progressive Party, lauding the move, and Act Party finance spokesman Rodney Hyde critical of taxpayers having to shell out another $40 million in capital.

He said the bank was only getting $3000 per customer in deposits, less than half the amount predicted in the base case put to Government.

Mr Knowles said the mix of its customers was largely as expected though accounts for under 18s were slightly ahead of forecasts and there was a trend of high value customers depositing "considerably more money than planned".

Hundreds of customers a day were signing up to Kiwibank's new credit card. Mr Knowles accused other banks of ripping off customers to the tune of $250 million by charging interest rates of 19.9 per cent against Kiwibank's 12.9 per cent.

NZ Post chairman Jim Bolger, the former National Party prime minister, declined to comment on whether today's announcement would make it difficult for a political party opposed to the state bank to unwind the business.

He said he was not surprised at the apparent success of the bank, "otherwise I wouldn't have taken up the position".

- NZPA