Kiwibank seeking cash injection

By PAULA OLIVER

Kiwibank will need another cash injection for a foray into small business banking.

The move is awaiting ministerial approval.

The state-owned bank and its parent, NZ Post, are refusing to say how much money will be needed for what they say will be a slow entry into business banking.

They say it "wouldn't be hundreds of millions".

Since signalling the move last year, Kiwibank has been in talks with its parent to secure funding and has gained the backing of the NZ Post board.

A business case has now been sent to State Owned Enterprises Minister Mark Burton, who could take until August to decide if the plan stacks up.

Kiwibank's formation was funded by an initial $72 million injection from the Government.

Last year NZ Post said it was giving the bank a further $40 million to make sure it had the required amount of capital, and to continue growing.

More money will be needed for its entry into business banking.

Massey University banking analyst David Tripe said the amount needed would depend on how it intended to get into the market.

"It depends if they're going to get deposits or make loans. I guess the chunk of the market they're actually chasing is that proportion of the residential mortgage lending which is serviced by business income but is secured by residential mortgage."

That would be a good place to start, Tripe said, and in that case the bank would not need any more capital than it would for any other mortgage lending.

"They're going to have capital issues somewhere down the track, anyway. Their profitability is not such that it's actually generating large surpluses to boost their capital base."

Kiwibank chief executive Sam Knowles said in March that the bank was edging close to reporting its maiden profit.

It would get close this financial year - which runs to the end of this month - but Knowles was not confident enough to say it would make it. He was confident, however, that the bank would crack a profit next financial year.

Tripe expected Kiwibank would take its extra capital in steps, as it did with the last $40 million it received.

"If you look at what they did then, it was effectively done in bits because they didn't need all that capital dumped in there at once."