State-owned Kiwibank is planning to raise money from the public to underpin its growth, raising questions about parent New Zealand Post's ability to continue funding it.
Kiwibank yesterday said it was considering raising up to $150 million through the sale of perpetual preference shares - effectively bonds which pay a
fixed return and do not have to be repaid. The shares will be issued by a subsidiary but the money raised will ultimately be used to provide Kiwibank with "Tier 1" regulatory capital.
Regulatory capital represents the bedrock minimum funds as a proportion of overall assets banks must hold in reserve as a buffer against adverse economic conditions. Any growth in a bank's overall assets must be underpinned by a proportionate increase in its regulatory capital, according to Reserve Bank rules.
NZ Post has supplied as much as $55 million in additional capital to fast growing Kiwibank every year since the bank was established in 2002. Kiwibank chief executive Sam Knowles has for some time said the bank would move progressively to self-funding through retained profits rather than leaning entirely on its parent.
While Kiwibank recently turned to markets this is the bank's first move to raise regulatory capital.
NZ Post and Kiwibank chairman Jim Bolger yesterday denied there were any concerns about NZ Post's ability to continue to fund the bank, which now generates most of the entire group's revenue.
But Massey University head of banking studies David Tripe said it was a fair assessment that yesterday's announcement may reflect some unwillingness or inability at NZ Post to continued funding Kiwibank's expansion.
"I would think the shareholder would be somewhat constrained in providing capital to them."
NZ Post last month reported a $42.5 million net profit for the six months to December 31 last year, down 19.4 per cent. A few days earlier Kiwibank reported a 9 per cent drop in half year profit to $23.5 million even as total assets rose.
In the last full financial year NZ Post tipped $39.4 million into the bank to bolster its capital position.
