Kiwibank's net profit fell by 5% in the June year. Photo / Supplied
A “challenging” economy and the repayment of cheap, Covid-era loans helped drive Kiwibank’s net profit down by 5% to $191 million in the June year, the bank says.
Kiwibank, which is preparing for a $500m capital raise, said strong balance sheet growth was offset by a lower net interest margin - the difference between a bank’s interest income and the amount paid to its depositors and other lenders.
The bank grew total lending by 10% to $35.8 billion.
Home lending grew by $2.3b and business lending grew by $1b.
The bank’s deposit book grew 8% to $30.3b.
Chief executive Steve Jurkovich said the bank delivered strong underlying growth in the highly competitive home lending and deposit markets.
“Business banking was a standout in a subdued market and a clear signal of our commitment to backing Kiwi businesses through uncertain times,” he said.
“At the same time, we continued building the Kiwibank of the future by investing to be more adaptable and customer focused.”
Jurkovich said the bank believed strongly in technology but recognised that face-to-face service was still highly valued by customers.
“We have managed to grow the business pretty strongly, so that’s a good result,” he told the Herald.
He said it was “tough going” in the economy and that Auckland and Wellington were feeling the pinch more than other parts of the country.
“That’s quite a contrast to how strong Christchurch and Queenstown are.
“We can see that across our business that there’s a very different atmosphere, you know, from our own team and from our customers across the country.
“There are a few hotspots and bright moments, but generally speaking, I think people feel like it’s been a grind for quite a while.”
Kiwibank’s net interest margin was 2.25% in the year compared with 2.38% a year earlier.
He said the margin decline reflected repayment of the Reserve Bank’s Covid-era “funding for lending” (FLP) loans programme.
“The FLP process meant that banks got a lot of very low-cost funding which lasted for three years, that had to be repaid.”
Cabinet’s approval for the parent company Kiwi Group Capital (KGC) to explore a capital raise of up to $500 million was designed to accelerate the bank’s growth and strengthen its competitive edge, he said.
Jurkovich said Kiwibank was in the final stages of preparing all the materials to go to would-be investors.
“They get six to eight weeks to have a look through that, we aim to have that material in front of would-be investors by the end of next week, and then they will have a couple of months to review it.
“We’ve been doing a lot of work, but it’s sort of been behind the scenes at the moment,” he said.
Will the capital raise be completed by the end of the year?
“I think that the target timeline is sort of working to that premise, but there are a lot of moving parts,” he said.
“Obviously, Cabinet need to meet to make some decisions on would-be potential investors.
“We are aiming for a close at the end of the calendar year.
“That’s probably pretty ambitious, but that’s the timeline we’re sticking to at the moment.”
The capital raise will target New Zealand investors - iwi investment, KiwiSaver funds, and the big investment funds.
“There’s a universe of about 20 potential investors that we’ve spoken to.”
Kiwibank is making progress in business lending.
Out of total lending of nearly $36b, about $5b is in business lending.
“That is a smaller share [of business lending] than the other banks, but it’s growing way, way faster than the other banks.
“So we are really upbeat about our opportunities in business banking, which we have more than doubled over the last three years.”
Jurkovich said small and medium sized businesses were the bank’s biggest opportunity.
“We really want to push into that territory because we just feel like there’s a lot of room to provide a different sort of style of banking to smaller businesses.”
The result follows yesterday’s Monetary Policy Statement from the Reserve Bank, which projected the Official Cash Rate (OCR) - now at 3.0% - would eventually drop to 2.5%.
Kiwibank’s economists have long been calling for a lower OCR.
“The other banks have stepped away from their calls but Jarrod [chief economist Jarrod Kerr] and the team were very, very clear that they thought there should have been a cut three or four months ago, so we’re proud of the position they took.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.