Kiwibank’s firsthalf profit drops 18%
AUCKLAND: Kiwibank’s firsthalf net profit fell 18% as its interest margin narrowed and operating costs rose but it aggressively increased market share.
The bank, which is 53%owned by New Zealand Post, 25% by the NZ Superannuation Fund and 22% by ACC, reported a net profit of $51 million for the six months ended December, down from $62 million in the corresponding six months a year earlier.
Chief executive Steve Jurkovich said he was pleased with the growth in lending.
However, he acknowledged that Kiwibank’s focus on the retail and small business parts of the market meant last year’s fall in the Reserve Bank’s official cash rate from 1.75% to 1% hit Kiwibank’s net interest margin harder than it did other banks.
‘‘We feel it more than some of our competitors,’’ Mr Jurkovich said.
Kiwibank’s net interest margin fell 16 basis points to 1.97% between December 2018 and 2019, much greater than ASB Bank’s 10point drop to 2.13% and Heartland Bank’s 7 basis point fall to 4.27%. Heartland’s higher margins reflect the fact that it does not try to compete headon with the mainstream banks but looks for lucrative niches neglected by the others.
By contrast, Kiwibank competes headon with the big four banks but does not have comparable business and agricultural lending that the big four have and where margins tend to be fatter than at the retail end of the market.
Kiwibank’s costtoincome ratio jumped to 74.7% compared with 67% in the yearearlier first half, reflecting the cost of growth, continued investment in its ‘‘transformation’’ programme that Mr Jurkovich initiated after he joined the bank in mid2018, and higher risk and compliance costs.
The latter relates to the joint conduct and culture review by the Reserve Bank and Financial Markets Authority, as well as the RBNZ’s bank capital review which means Kiwibank will have to lift its shareholders’ equity to a minimum of 11.5% of riskweighted assets by June 30, 2027, and total capital to 14%.
Kiwibank already meets the shareholders’ equity requirement since that ratio was 12% at December 31. However, its strong growth means that ratio has dropped from 12.4% at June 30 last year and 13.4% a year earlier.
Kiwibank’s December disclosure statement shows its mortgage book grew by $1.78 billion to $19.63 billion in the 12 months ended December 31 and the bank said its net total lending grew by $1.1 billion, or 5.3%, in the latest six months while customer deposits grew by $1 billion, or 5.4%. Its business lending jumped 17% but off a low base.
Using Reserve Bank figures as a proxy for the market, Kiwibank accounted for 10.1% of bank lending in calendar 2019, which took its market share to 7.17% at December 31.
Kiwibank’s disclosure statement says it expects to meet the other capital requirements through ‘‘a combination of growth in retained earnings and the issuance of qualifying capital instruments over the transition period’’.
With total capital at 13.2% at December 31, Kiwibank has some way to go to meet the new total capital requirement.
RBNZ has not made any final decisions on what the characteristics of those ‘‘qualifying capital instruments’’ will be. Mr Jurkovich said he expected to have a better idea of what would be acceptable by July.