Kiwibank on track for profit

By PAULA OLIVER

Kiwibank yesterday edged close to reporting its maiden profit and signalled that it could soon need another cash injection to enter the business banking market.

The state-owned bank, which opened its doors amid controversy two years ago, lost $1.5 million in the six months to December 31 last year.

That is an improvement on the loss of $6.5 million in the corresponding period a year before, and chief executive Sam Knowles was yesterday confident that the bank's first-ever profit would come in its next financial year.

That year will be its third, and the bank's original business case projected it would break even in year three or four.

Kiwibank could even be close to registering a profit at the end of this year, but Knowles was cautious.

"We'll be pretty close, but I can't promise that we will make a profit this year. It would be ahead of our current plan if we did make a profit."

The bank continued to enjoy rapid customer growth during the half-year, registering on average 400 new customers each day.

This year it will draw on the second part of a $40 million capital injection announced last year by its parent, New Zealand Post.

The money was required to keep capital up to pace with the rapid growth the bank was experiencing.

But Knowles yesterday indicated that a plan to enter the small business banking market would mean further cash was required from Kiwibank's parent.

"We are working on a small business strategy. We haven't made a decision on it yet, but we're looking to do that in the next two or three months."

Kiwibank was in talks with NZ Post to get the money it needed, and the decision on whether to proceed with business banking would depend on that.

Although he refused to say how much would be needed, Knowles said it would not be a large amount.

"We'd make a fairly slow entry into that type of market. It wouldn't be hundreds of millions."

He stressed that NZ Post was well capitalised and had more than enough to deal with the Kiwibank idea.

NZ Post is due to report its next financial result on Wednesday amid discussions with German giant DHL over a joint venture courier business.

The plan to enter business banking has been well flagged by Kiwibank's bosses.

Knowles yesterday said that the bank wanted to target businesses from the corner dairy up. That sector tended to have loans of between $50,000 and $500,000.

Many small business owners already entered Kiwibank branches to get their mail from postboxes, he said, and the convenience of doing their banking at the same time could be a selling point.

The bank would stay well clear of farm and commercial property lending for the foreseeable future.

The move into business banking comes after a period of rapid growth in home lending. Kiwibank had just under $800 million in home loans at the end of last year.

That is an increase of $530 million on the period a year before, but still a mere 1 per cent of the overall mortgage market, which totals $80 billion.

Knowles said that figure included some small business lending.

Kiwibank's share of growth in the market during the half year was about 9 per cent. He was confident the bank could continue to grow its home loan book by $500 million a year.

The bank would put a new emphasis on the Auckland lending market, which had higher average mortgages.

"It's fair to say we probably don't get our full share of the large business in Auckland because we haven't targeted that type of business," Knowles said.

The market had consolidated and it was now easier to compete, he said.

Asked whether the slowing housing market would affect Kiwibank significantly, Knowles said the bank had focused on re-financing existing mortgages rather than looking for new business, so it would be affected less than people might expect.

He would not reveal any numbers related to the bank's new credit card, which was launched in the middle of last year, except to say that it was tracking well and losses were within expectations.