Proposed new rules will impact shareholders, warns bank boss
Kiwibank’s taxpayer-funded shareholders may have to take a lower dividend or tip more money into the bank under the Reserve Bank’s proposed increases to capital, its chief executive says.
The bank, which is 53 per cent owned by New Zealand Post and 47 per cent owned by Crown entities, the New Zealand Superannuation Fund and ACC, yesterday declared a halfyear profit of $62 million for the six months to December 31.
The Reserve Bank is proposing to nearly double the capital required by banks in order to make them better able to stand up to shocks.
The big four — ANZ, BNZ, Westpac and ASB — could see tier one capital requirements increase from 10.5 per cent to 16 per cent as a percentage of risk-weighted assets while smaller banks like Kiwibank could see it rise to 15 per cent.
The proposed changes, which are open for consultation until May, would come in over a five-year period.
Chief executive Steve Jurkovich, who took on the top job in July last year, said it supported the Reserve Bank’s philosophy behind its capital proposals but it was not without implications.
“It creates more of an even playing field in several areas, like how capital requirements are calculated, but it is not without implications.
“We understand and support the Reserve Bank’s philosophy. It is in everyone’s interest to have a strong local banking system that is deeply invested in New Zealand and supports great customer outcomes.”
He said Kiwibank’s capital levels were currently significantly above regulatory requirements but it would need to review its position over the transition period.
Jurkovich said part of the capital for Kiwibank could come from retained earnings — which could mean lower dividends paid to its shareholders — or shareholders may have to put more money in.
Jurkovich said its shareholders had their “eyes wide open” about their investment in Kiwibank.
He said both ACC and the Super Fund were long-term investors and had given a clear message to the bank about reinvesting in the business.
A spokeswoman for the New Zealand Superannuation fund said it was a very supportive shareholder of Kiwibank which was on an “exciting growth trajectory”.
“We will continue to support the bank over and above any regulatory capital requirements as it achieves that growth strategy.”
Jurkovich said the five-year timeframe was “doable” for the bank although others may feel differently.
Analysts at UBS and Macquarie have warned the proposed changes could add up to 120 basis points to mortgage interest rates.
But Jurkovich said he believed a 120 basis point increase was an “outlier” prediction.
Kiwibank’s underlying net profit was up $4m from $58m to $62m.
The bank saw its loans and advances rise 7.2 per cent from $18.027 billion as of the end of 2017 to $19.316b as of the end of 2018.