Kiwibank seeks overseas cash

Sam Knowles, chief executive of Kiwibank, says new Reserve Bank rules will cost New Zealand a lot of money. Photo / Mark Mitchell

The head of Kiwibank says it will need to use overseas funding to grow, driven in part by new Reserve Bank rules regarding liquidity.

Kiwibank today declared a 9 per cent drop in half year profit to $23.5 million, which was "a strong performance in a very difficult financial environment", said chief executive Sam Knowles.

The bank successfully raised $309 million through its first overseas bond issue, in Australia, as Knowles said to widen its funding base for domestic residential lending it would be able to use that structure in the future.

However, Kiwibank, set up in 2002 by the Government to be a locally owned alternative to the big four Australian banks, was subject to new Reserve Bank rules that from April 1 banks have to have a 65 per cent liquidity ratio.

That made it more attractive for Kiwibank to go offshore for funding. The cost of sourcing local funds would be a lot higher as Australian banks would also now be competing for them.

"This is really a consequence of a Reserve Bank decision and it is costing the sector a lot of extra money and probably costing New Zealand a lot of money in terms of the extra cost of raising money globally.

"We have a disadvantage now, as any New Zealand-owned organisation has, that access to overseas money is cheaper than local money because of the way the Reserve Bank has set the rules."

Knowles believed it was a short-term issue. "My presumption is that, over time, other banks will strengthen their offshore term franchises and there will be some adjustment in the market."

It meant depositors were doing well and lending rates would increase faster than they would otherwise.

There was a cost to the economy in paying for banking security, he said.

"I think it's a trade-off in the end, that the Government and the Reserve Bank has to make. I am not sure it's a smart thing to do for a nation that's a big borrower."

Meanwhile, Kiwibank said in the half year total lending increased 15 per cent to $9.8 billion and retail deposits increased 3 per cent to $6.9 billion.

Assets grew 27.4 per cent in the year to $12 billion while total liabilities grew 26.9 per cent to $11.6 billion.

The ratio of retail deposits to retail lending was 71 per cent, down from 90 per cent at the same time last year.

Total capital increased by $99.5 million to $550.8 million, 22 per cent up from last year.

The bank now had over 700,000 customers and was gaining 2000 new customers a week.

"We are going along at a steady clip of taking customers away from other banks, as we have been doing for years."

- NZPA