Kiwibank spreading its wings

By BRIAN FALLOW

Kiwibank has revealed it will make its long-expected foray into the small business banking market next year.

But it says it will start cautiously.

Chief executive Sam Knowles said yesterday the move had been approved by the shareholding ministers of the bank's state-owned parent, New Zealand Post.

He said the small business market was not well served by other banks, whose priority was large firms.

"We believe the other banks are overcharging in this area and that they are not competing.

"Nor are they providing the kind of deals we can provide."


For many firms, co-location with a post office would be convenient.

And, for some, Kiwibank's New Zealand ownership was also an important factor.

Entering the business banking market would be done in a measured and low-risk manner.

"We will be going quite a bit slower in the business banking than we did in the consumer markets," Knowles said.

"The plan is to move into some sort of pilot later this year."

Kiwibank would be working with a small number of customers at first to ensure the products and services were what they wanted.

"The businesses will deal with specialists in the same way as all the people who do home loans specialise in that. We have recruited key staff from the other banks to set this up."

Knowles says about $20 billion of the $90 billion that banks have lent secured on home mortgages is being used for for business purposes.

Kiwibank will also often require that form of security.

"Most small businesses have to have some form of personal support, because otherwise you don't know the level of commitment of that small business owner to that business.

"If they are not prepared to put something behind it, then we are not prepared to lend to them."

There would be no immediate need for extra capital for Kiwibank but Knowles said extra money, in the tens of millions of dollars, would be needed over the next year or two to support its growing balance sheet.

Kiwibank yesterday reported an after-tax loss of $490,000 for the year to June, down from an $8 million loss the previous year and a maiden $10.1 million loss the year before.

Knowles said the bank had been in profit for the past three quarters, and he was confident it would make a profit for the next half-year even with the initial costs of business banking.

When the bank started in 2001, it said it expected to be profitable by its third or fourth year.

Its home loans doubled to just over $1 billion in the past year, and continues to be almost entirely funded by retail depositors, up from $465 million to $960 million.

The growth in its lending has lifted net interest income from $10.2 million to $22.4 million and banking fee income from $4.5 million to $20.6 million during the past year.

But fees from NZ Post for providing the traditional bill payments service still provided 47 per cent of Kiwibank's income last year - $38.2 million in the latest year, up from $34.9 million last year.