Kiwibank owner New Zealand Post looks set to close a number of outlets due to financial pressures partially caused by its banking arm, Vernon Small reports on Stuff.
The announcement reignites questions over the viability of the government's support of the State-owned bank as it strives to increase its market share and expand out from small-medium enterprise lending and play and compete with the big Australian banks.
"Currently, the group loses NZ$40 million per annum ... for services provided to the postal business, Kiwibank, and third parties," NZ Post Chairman Michael Cullen said in a letter to SOE Minister Simon Power earlier this year.
Kiwibank's after-tax profits for the six-month period to December grew from NZ$5.4 million in 2005 to as high as NZ$25.8 million in 2008, although that fell to NZ$13.9 million last year. However, despite the bank appearing to be profitable on its own, it is still effectively subsidised by NZ Post (and therefore the taxpayer).
In the six months to December 2010, with an after tax profit of nearly NZ$14 million, Kiwibank received NZ$20.8 million worth of "payment services fee income" from NZ Post. Kiwibank is paid to run the post shops, providing bill payment and other services to NZ Post customers.
The government also provides support for Kiwibank's credit rating through an agreement to provide currently uncalled capital on commercial terms in the case of a significant unforseen event that would hit the banks books and trigger a possible downgrade.
Kiwibank striving for growth
Meanwhile, the Herald reports Cullen's comments to Parliament's Commerce Committee last month that Kiwibank had been staffed and organised on the assumption of very strong growth.
"At any particular point in time it's staffing is reflecting the anticipated needs for the growth of the next phase rather than it's current service delivery profile. As a consequence its actual cost ratio is actually quite high by banking standards," Cullen said.
"This period of slow growth, which is going to be inevitable for Kiwibank over the next year or two, is probably an opportunity to address more firmly that issue of cost reduction within Kiwibank itself," he said.
There were suggestions last year that half of Kiwibank could be sold off for the type of 'mixed-ownership' scheme the government is looking at for the State-Owned power companies. Should this be looked at again?
Kiwibank still currently puts pressure on NZ Post and the government's resources as it strives for growth. Should it continue to be subsidised for a few years while it gains its market share, or should it be made to be profitable on its own now (it's had a number of years to figure out how to do that itself now)?
With New Zealand's postal system declining due to e-mail and other forms of communication, should there be cuts to that side of the NZ Post business, so that Kiwibank can still be supported until it's able to be profitable on its own?
Meanwhile, Kiwibank is borrowing hundreds of millions of dollars in offshore 'hot' money markets and lending it back into New Zealand's mortgage market at record low interest rates. See our article here.
We welcome your views and insights in the comment section below.