Improving Kiwibank confident of meeting profit target

4.30pm

State-owned Kiwibank has improved its annual loss in its first full year of operation and said today it is on track to become profitable during 2005.

Kiwibank, which launched in February 2002, posted a net $8 million loss for the year to June, an improvement on its $10.2 million loss last year.

Chief executive Sam Knowles said the bank was on target to post a smaller loss this financial year before moving into profit some time in the next financial year.

"We're halfway, we're very comfortable we'll make the next half," he said.

During its first full year Kiwibank launched a credit card, launched a lowest-cost guaranteed mortgage, completed its ATM network, and started its insurance business Kiwi Insurance.

Kiwibank was considering offering banking to small businesses as well as residential customers but had not made a final decision.

A division of New Zealand Post, Kiwibank has 287 branches using the NZ Post network and aims to open 300.

The bank's growth during the year of 115,000 customers, or about 315 a day, to 147,000 surpassed its forecasts. That has built to 170,000 since the balance date.

Early business plans provided for 165,000 customers in three years.

However, it was still a minnow with 1 per cent of the retail deposit market, and just under 1 per cent of the mortgage market.

"That, we believe, is very credible growth for a start-up enterprise," Mr Knowles said.

"People from outside had a lot of question marks about Kiwibank because there aren't examples of banks starting up and going to profit in three years.

"What it comes back to is the underlying strategy and the logic of the model, the logic of leveraging an existing branch infrastructure run by NZ Post into a mature market, but a very profitable market..."

The top five banks in New Zealand made a combined $2.6 billion profit after tax last year.

The bank had to consolidate its customers into a solid, mature client base if it wanted long-term growth.

The question Kiwibank had to answer was: "Are we just the bottom dweller that will pick up the customers that other banks don't want, or are we going to push as we intend to in the mid-market and offer the position as price leader ...?"

Kiwibank's better than expected growth was currently sustainable, although it had needed a $40 million capital injection from the Government, $22 million of which it had already drawn.

The extra capital was needed to satisfy Reserve Bank asset ratio requirements.

The Reserve Bank requires banks maintain a ratio of capital to assets of at least 8 per cent. Kiwibank currently has a ratio of 16 per cent but that will fall to 10 per cent as it builds rapidly.

"(The growth)'s enough for our current projections. It's a choice for our shareholders -- if we say we want to grow faster then we'll go to our shareholders and talk to them about whether they want to finance that or not."

Kiwibank's lending book rose to $501 million from $43 million the previous year, with mortgages rising 20 per cent to $127.5 million ($106.1 million).

Net interest revenue rose to $28.68 billion from $3.24 billion at June 30 2002, and interest expense also rose, to $18.411 billion from $823 million.

Assets totalled $771 million at the end of June, while liabilities were $712 million.

Unreleased surveys showed 90 per cent-plus satisfaction with Kiwibank, while the overall opinion of Kiwibank from public surveys rose to 74 per cent positive from 59 per cent the year earlier.

A sale by Lloyds TSB of the National Bank to the ANZ, the most likely contender, would be a mixed result for Kiwibank, Mr Knowles said.

Kiwibank could portray itself as a New Zealand alternative to attract National Bank customers, but it would mean there was less depth for Kiwibank's treasury operations in the wholesale banking market.

- NZPA