Kiwibank CEO Steve Jurkovich calls for end to interest rate hikes, as bank posts record profit

Kiwibank chief executive Steve Jurkovich says Kiwibank's mortgage book has grown as it has expanded its broker network.

The chief executive of New Zealand’s state-owned bank, Kiwibank, is calling on the Reserve Bank to stop hiking the official cash rate.

“It must get to a point at some stage where you have to recognise the brakes have been on for a lot of people and stamping on the brakes isn’t the right plan,” Steve Jurkovich told the Herald, following the bank reporting a record high half-year profit.

While he didn’t believe high interest rates would suddenly push the economy off a cliff, he could see them continuing to grind people down.

“It does feel like people are readjusting to it [higher interest rates] but they’re also cutting their cloth to suit themselves, which is a, ‘Hey, I won’t spend on going out, I won’t spend on entertainment, I’ll cut back on subscriptions’ – all those things where you can make choices,” Jurkovich said.

“At the end of the day, there’s a business owner in all of those things … There will be business people looking around going, ‘This is way too hard. Maybe I’ll just not renew my lease, maybe I’ll work from home, maybe I’ll close up’.”

Jurkovich’s comments mirror the views of Kiwibank economists, who have for some time been among the most dovish among their peers.

While ANZ economists believe the Reserve Bank will hike the OCR on Wednesday, and again in April, Kiwibank economists are adamant that holding the rate where it is for a bit longer will be enough to reduce inflation.

Kiwibank’s result for the six months to December 31, 2023, shows that those with mortgages are generally meeting their repayment obligations, while businesses are struggling more.

For example, 0.36 per cent of Kiwibank’s mortgage lending was past due, but not impaired, while 4.54 per cent of its corporate lending was in this space.

Looking at Kiwibank’s financials more broadly, the bank’s net profit after tax rose by 7 per cent in between the six months to December 2022 and the six months to December 2023 to $105 million – a record high.

The bank grew its loan book 2.8 times faster than the market, as it continued to expand the adviser network it used to sell its products.

All up, Kiwibank’s lending grew by 4.5 per cent in the half year, compared to the same period in 2022, above the 1.6 per cent market average.

At 4.2 per cent, Kiwibank didn’t grow the value of its deposits by as much but more than the market average of 3.3 per cent.

“If I roll back the clock say a year ago, a year-and-a-half ago, we had 100 accredited brokers,” Jurkovich said.

“We’ve now got nearly 500. There are about 2500 in New Zealand … Growing our reach into advisers about five-fold has made a big difference.”

Jurkovich said people were perceiving borrowing to be more complicated with interest rates high and Credit Contracts and Consumer Finance Act (CCCFA) lending rules in place, so we’re increasingly turning to brokers to help them secure finance.

“The feeling is that the broker has got the expertise; the broker will go and test the market for you. There’s also a psychological element of not getting told “no” [from a bank] face-to-face, which I don’t think most people recognise,” he said.

Jurkovich recognised Kiwibank still relied less on brokers than its competitors in New Zealand, so had more work to do in this area.

While Kiwibank wrote more loans in the half year, the interest rates it charged borrowers, relative to those it paid depositors, also contributed towards its profitability.

Accordingly, its net interest margin rose by 4 basis points to 2.48 per cent – a level above the industry average.

Jurkovich defended the rates the bank paid depositors versus the rates it charged borrowers, saying the growth in business Kiwibank experienced on both sides of the ledger suggested it got the balance about right.

Kiwibank’s funding costs move around in slightly different ways to the four Australian-owned banks, partly because it relies much more on deposits for its funding than wholesale money markets.

It also drew down more (relative to its size) from the Reserve Bank’s Covid-era funding for lending programme than the big banks.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.