Kiwibank fighting fit and eyeing lucrative business banking

By PAULA OLIVER

Spurred on by strong customer growth and a cash injection from its parent, Kiwibank is eyeing an entry into lucrative business banking.

Chief executive Sam Knowles said yesterday that while Kiwibank's board had made no firm decision, it was a clear opportunity for the future.

"We know it's a market that is charged too much. Businesses have been asking us to provide our services. Our inclination is clearly to look at business banking."

Knowles joined chairman Jim Bolger and New Zealand Post chief executive John Allen in a press conference yesterday to reveal that $40 million would be poured into Kiwibank over the next two years.

The bank's formation was funded by an initial $72 million injection from the Government.

The $40 million will come from New Zealand Post's balance sheet through a mix of cash and debt.

The rationale behind the move was that Kiwibank needed more capital to continue its growth, which was running well ahead of forecasts.

Reserve Bank of New Zealand capital adequacy regulations require that banks have capital of not less than 8 per cent of "risk weighted exposures".

Most of the country's big five banks have ratios of 9 to 11 per cent.

Knowles yesterday said Kiwibank's present ratio was 16 per cent, but if it continued its fast lending growth that would eventually edge closer to the limit. Now was a good time to inject more cash and make sure Kiwibank's ratio sat nearer its target of 10 per cent.

Kiwibank signed up customer number 150,000 two weeks ago, after 16 months of trading. A steady average of 400 people join each day.

Its retail deposits stand at $450 million, and its home loans have passed the $500 million mark.

But although those figures are well ahead of expectations - a target of 165,000 customers was set for the first three years - Kiwibank is still very much a small fish in a big pond.

Its market share of customers is 3 per cent, it has close to 1 per cent of the deposit market, and its share of mortgages is 0.8 per cent of the total.

Knowles yesterday hit back at criticism from Kiwibank detractors that its customers were low value.

"The higher value customers are coming, and our average term deposit now is $32,000 - that's moved substantially from when we launched."

But vociferous Kiwibank opponent and Act finance spokesman Rodney Hide said the figures showed the bank's average deposit per customer was $3000, well below the target of $6500 after two years.

Massey University senior banking lecturer David Tripe said the latest cash injection was inevitable due to Kiwibank's growing loan portfolio.

"Unless they start getting very profitable, they will need more if they're looking at business banking."

The bank is on target to make its first profit in the 2004-2005 year.

Knowles said more capital might be needed for business banking, but that would depend on how Kiwibank entered the market. If it went with transactions and deposits, it would not need more money, but if the focus was on lending, it would.