Kiwibank Banking Group's net profit hard hit by IT project impairment

The result was significantly impacted by an impairment of $90m relating to an IT project. Photo / Hawkes Bay Today

Kiwibank Banking Group posted a 57 per cent drop in full year net profit while its holding company, Kiwi Group Holdings, reported a 56 per cent drop, due to the significant impact of an IT project impairment.

Kiwibank's net profit was $53 million in the year to June 2017 versus $124m in the prior period while its underlying profit was $122m compared with $124m in the prior period. The bank's holding company, Kiwi Group Holdings, which includes Kiwibank, Kiwi Wealth and Kiwi Insurance, posted a 56 per cent drop in net profit to $58m from $131m.

The result was significantly impacted by an impairment of $90m ($65m after tax) relating to the work in progress on the IT project known as CoreMod, the Wellington-based company said. The decision to make the impairment is a result of a strategic review of the project aimed at modernizing the company's core banking system.

Chief executive Paul Brock said meeting rapidly-changing technology and customer requirements is key. "In the past year over 40 per cent of sales, for example, were completed through a digital channel. More than 57 per cent of customers digitally connect with Kiwibank, collectively over 27 million times each month," he said. Those numbers are expected to climb.

As a result, CoreMod is being reviewed to assess the value of some of the work completed so far. While this review is being completed, a decision has been made to impair the value of the work in progress which currently sits on the balance sheet as an intangible asset, Kiwibank said.

Kiwibank grew its total lending on home loans, business banking and credit cards by 6.8 per cent to $17.8 billion, while its customer deposits increased 8.1 per cent to $16.00b. It had an 8.0 per cent market share at the end of June. It's operating expenses increased were $339m versus $301m in the prior year.

The ownership of the holding company was diversified during the financial year. Previously wholly owned by the state-owned postal service New Zealand Post, the group now has three government shareholders, with NZ Post owning 53 per cent, the New Zealand Superannuation Fund 25 per cent and the Accident Compensation Corp 22 per cent.

Earlier this month Kiwibank announced Brock will leave the state-owned lender at the end of the year, ending seven years in charge of the country's fifth biggest bank.