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Kiwibank after-tax profit $45.8m

Fuseworks Media
Fuseworks Media

Wellington, Aug 18 NZPA - Annual profits at state-owned Kiwibank fell as it earned less income from interest, but a government decision to provide uncalled capital support ensures it will be able to continue its growth strategy.

The company announced today a 13 percent fall in after-tax profit to $45.8 million in the year to June, while loans and advances rose 23 percent to $10.4 billion, and retail deposits were up by 3 percent from to $6.9b.

Outgoing chief executive Sam Knowles said the profit decline was driven by a fall in net interest income to $133.4m from $163.4m a year earlier.

That was partly due to the Reserve Bank's core funding ratio requirements that banks must secure 65 percent of funding from domestic deposits and bonds.

Offshore markets for term debt were also difficult for its competitors to tap, so the Australian-owned banks had competed strongly for the term deposit market which was Kiwibank's main funding source. That had then driven down Kiwibank's margin on its interest.

Just before Kiwibank announced its results, the Government said it was to provide Kiwibank's parent New Zealand Post Group with uncalled capital support, to provide credit rating support.

The long term stability of NZ Post's AA- credit rating is seen as enabling Kiwibank to continue with its growth strategy.

NZ Post chief executive Brian Roche said the move was an important step for the group and Kiwibank.

"It's been a long time coming. We've worked closely with the Government for several months, and now we're very confident we can move forward, secure the credit rating, which will allow us to remain competitive in the markets that we choose to be in."

The uncalled capital could only be used as protection against a significant unforeseen external event, and was not available to fund growth activities or support deterioration of earnings in regular business, Mr Roche said.

Work was still under way to finalise details for the support which he expected to be in the low hundreds of millions of dollars.

Mr Knowles said the uncalled capital support was "absolutely critical" for Kiwibank's growth plans.

"Now that's been agreed we will be going offshore and tapping into more funding sources," Mr Knowles said.

New Zealand domestic financial organisations could not be competitive unless they went offshore for funds, which were needed to keep the average cost of funding down.

NZ Post had proposed the structure of the uncalled support as the best way to meet the needs for growth, given the Government was in the difficult position of not wanting to guarantee banks but ratings agencies wanted it to be totally committed.

Kiwibank was working on plans to put facilities in place in the near term to raise funds overseas. That would be in the $200m to $500m range and was part of being prudent and having as many channels to access funds as needed, Mr Knowles said.

Kiwibank had enough capital to meet all the opportunities it had over the next year or so. As it looked at other opportunities it might ask for further capital, firstly talking to NZ Post. If NZ Post needed more capital it would no doubt talk to the Government.

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