Kiwibank to raise funds overseas

Chief executive Sam Knowles says KiwiBank's lending is up 52 per cent. Photo / Mark Mitchell

State-owned Kiwibank, which has trumpeted its exclusively domestic funding base, is to raise money on overseas wholesale markets soon in order to meet the Reserve Bank's new prudential liquidity policy.

During the depths of the credit crunch, when its major Australian-owned rivals increased interest rates in response to the rising cost of offshore money, Kiwibank made much of the fact its own operation was funded mainly by domestic retail deposits, with some domestic wholesale money.

That, it said, allowed it to undercut its rivals and probably helped it to gain a market leading share of new mortgage business in the final quarter of last year.

However, the bank, which yesterday reported underlying profit of $52.5 million, up 43 per cent from $36.8 million last year, said it would raise a relatively small amount of overseas cash this financial year.

Chief executive Sam Knowles told the Business Herald that with retail deposits increasing 39 per cent to $6.7 billion over the year the bank could still raise plenty of money in New Zealand to sustain its breakneck growth in lending, which was up 52 per cent to $8.5 billion.

"But in order to get the balance of price and term, we're going to have to start moving offshore."

Such a move had been inevitable, but the level of aggression shown by the majors banks' pursuit of local retail deposits had forced Kiwibank to act sooner than expected.

Knowles said the bank would be seeking term funding - longer maturity money - "obviously out of changes with the Reserve Bank requiring people to term out that debt".

The Reserve Bank's prudential liquidity policy for banks is intended to bolster the country's financial stability by reducing banks' vulnerability to wholesale money market volatility, such as that seen during the credit crunch.

It requires banks to hold more long-term funding, which tends to be more expensive, and it has helped fire the competition for retail deposits, particularly longer-dated term deposits.

These are deemed by the Reserve Bank to be a more stable form of funding.

Meanwhile, Kiwibank's statutory or "GDS" profit was $63.6 million, which included a $11.1 million gain on the sale of non-banking assets as required by the RBNZ, to a newly formed NZ Post-owned holding company.

Knowles said Kiwibank's strong mortgage book growth had not been at the expense of credit quality.

Impaired loans increased from $4 million to $19 million over the year, representing 0.2 per cent of total assets.

This was a lower ratio than most of its competitors.

After "quite an increase" early this year, impaired loans had "come right back again".

"The level that we are seeing, on a month-by-month basis, of the number of customers not paying us when due, is very, very stable as a percentage of the portfolio," he said.

The bank received a further $20 million in capital from parent NZ Post during the year.