Kiwibank's losses on target

By KEVIN TAYLOR

State-owned Kiwibank made a planned-for loss to the end of June of $10.2 million, and says its 60,000th customer will join this weekend.

But a banking expert has questioned the small size of Kiwibank's loan portfolio and whether the fledgling bank is attracting the high-value customers it needs.

Releasing the annual financial report yesterday, chief executive Sam Knowles said the loss was in line with projections and was about $1 million better than budget.

The NZ Post subsidiary has always expected to move into profit after its third year of operation.

Kiwibank opened in February and yesterday's financial report showed the progress in the 5 1/2 months since then.

To the end of June it had $86.1 million in customer deposits and $43 million lent in mortgages.

Knowles issued further figures yesterday showing home loan growth had doubled in the current quarter, with home loans now exceeding $100 million. Retail deposits now totalled $160 million.

However, David Tripe, senior lecturer in banking studies at Massey University, said he was surprised by how small Kiwibank's loan portfolio was.

"They have got a large number of customers with a relatively small value."

That told him they been successful in getting beneficiaries, but not middle New Zealand.

Tripe said loan growth had been on the slow side and Kiwibank was not going to have an impact on home loan rates, making them irrelevant.

By contrast, he said, the ASB increased its loan portfolio in the March quarter by $670 million with half the number of branches Kiwibank has.

"Kiwibank is jumping up and down about how they are undercutting the rest of the market, but of course they have to otherwise nobody's taking the slightest bit of notice of them as a potential bank."

Knowles, however, said Kiwibank had been making pleasing progress and was continuing to sign an average of 500 customers a day, drawn from all income sectors.

Kiwibank needs 100,000 customers over three years to meet its required rate of return, and Knowles said in February that if they got between 100,000 and 165,000 after three years they would be happy.

The bank was particularly pleased with the continued growth in home loans and deposits, he said.

Kiwibank has gone after the big five banks with aggressive undercutting of home loan rates. It has consistently kept its variable rate at between 0.5 and 1 percentage point below its big rivals.

The bank has recently also offered a mortgage guarantee, which it claimed was a market first, to show it meant business in keeping margins lower than the big banks.

It will guarantee better interest rates than its rivals for the next six years and will refund the difference if customers would have been better off elsewhere.

Knowles said there had already been a great response to the guarantee, with the bank's call centre experiencing its busiest days.

He was optimistic the numbers joining the bank would continue at the same rate.

Kiwibank's total assets stood at $177.1 million at June 30, with liabilities of $109.2 million and shareholder equity of $67.9 million.

Knowles said the bank now had about 260 branches, the largest branch network of any bank in the country.

Further reading
nzherald.co.nz/kiwibank