By Gareth Vaughan
Kiwibank's costs continued to blow out in the June quarter, as net interest margins rose and the state owned bank grew its home lending book.
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When the financials are published it will be interesting to see how much of this "profit" is a result of write backs and other accounting tweaks. Seems strange to see staff laid off (a quick and unsustainable way to adjust the Cost to Income ratio) yet be pushing a "record profit story".
Kiwibank appear to have been battling with efficiency for years; shedding staff appears to be "throwing in the towel" on any efforts to improve efficiency systemically.
And Post appear to have dumped (sorry given operational responsibility to) Kiwibank with the corporate retail stores. Surely, this can only add more costs to Kiwibank which got distribution at close to cost.
Now they are investing in costly big (aka bad) bank IT systems and stores yet the CEO said back in February that "the main growth opportunity for Kiwibank now is in its existing customer base" - this at seems to be working given the numbers since they made a meaningful entry in to KiwiSaver and Life Insurance a couple of years back).
Hopefully, the accounts will shed light on the rising costs (surely, big IT spend would be capitalised?) but seems they are only going to increase and the short term effect of 80 redundancies which will no doubt be offset by the annual round of pay increases in the exec team, where there have been no reported casualties.
I wonder if the TAB will take a bet on "Kiwibank dividend in 3 years"
Not sure where you get some of this from but, finance needs large IT, it is all about mvoing 1s and 0s efficiently, quickly and securely.
Laying off staff that are not required is a fact of life. Any business should be a lean amd mean business, bloat isnt profitable. Plus you question more IT, yet say "throwing in the towel" this doesnt seem to make mush sense.
regards
Always have to question IT investment, are they improving profitable business, or chasing technology. Considering they already have operating banks on the existing infrastructure where is the new direction taking them? Less branches, more apps?
True, I did assume "all else being equal" ie someone(s) competant has looked at the business case(s).
Also however its what the customer wants and is driving for. So yes less branches and more apps, yes I think that is the trend and a lot more mobile, most of it in fact. Go back 10 or so years ago I was probably in a bank branch a good handful of times a year, now once or twice and the rest is all Internet banking or eftpos.
What did that "handfuls of visits" cost? especially as a farmer having to drive to a big town? 20~50k each way? (or a lot more and the hour or 2 lost to do it) V a message to the smart phone costing a few cents, often instantly answered. My kids and indeed the younger customers expect 24/7/365 and instant access, always there and costing peanuts, can be done with the tech now. If we dont go with that, well the business is risking being toast as its competitiors do.
regards
The electronic cost is much higher than it appears. The security aspect is one part, having to pay a team of tech experts to develop and support the app is another. And where you've got a team like that you've got to keep them up to date..and your customers need compatibility with current software, and that means keeping up with the Jones* in compilier, security and hardware for business and customers.
* One of the reasons I wanted out of tech sector. I wasn't prepared to tell another customer that to upgrade to their current business software version, they needed to upgrade their OS and other background software, and to do that meant more money poured into hardware and comms...and that the new software/OS won't be compatiable with their other software so everything else will have to be upgraded...rinse...repeat. It was a real money spinner for our suppliers, and of course to get "certified" to work on the current gear one had to buy education from those suppliers. It was just a great big scam, that kept shoving up the price to customer.
and perhaps the worst was the tendency for certain overseas companies to have a product that wasn't going to survive in the market. They'd give all sorts of promotions and deals to the sales team and "business partners" to get them to move product. they give discount or free entry level support materials.... and then 9 months later the product would go out of support, with a recommended upgrade path to their new main (very expensive) product. ... something I suspect might happen to Fonterra's infant formula investment.....they'll have to pour cash in to keep it up, their partners will smile nicely, tell them bs, then in 9-24 months, it will all slide downhill and they'll be invited to invest in the new kid in the market.
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For me the drive is nothing, I only visit branch a couple of times a year, and one of those is consultancy and planning with the business manager to make sure risk is being managed and my business is stable. Most of my actual BNZ banking business is done via Hamilton office, a 5 hour drive away.
However Kiwibank is different. As is my banking with Coop bank.
It's small time, often dealing with eftpos or non-business transactions. Not that Kiwibank don't offer excellent mortgages etc, and their staff have always been excellent. But many of their customers are those who don't have secure computers and to whom a few dollars in fees might mean a few days without meals (as was me 10 yrs ago)
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Much of my actual point being, if your current IT system delivers good results now, is there really any reason to jump on the cost treadmill? Are _their_ customers going to _actually_ make _buying_decisions_ about banking services based on the improvement?? chances are "good enough" and "cost effective" are two points of product differentiation in Kiwibanks favour. Which if that is true, how foolish of them to quit the race they're winning so they can be the late starter in the bigger race?
When the financials are published it will be interesting to see how much of this "profit" is a result of write backs and other accounting tweaks. Seems strange to see staff laid off (a quick and unsustainable way to adjust the Cost to Income ratio) yet be pushing a "record profit story".
Kiwibank appear to have been battling with efficiency for years; shedding staff appears to be "throwing in the towel" on any efforts to improve efficiency systemically.
And Post appear to have dumped (sorry given operational responsibility to) Kiwibank with the corporate retail stores. Surely, this can only add more costs to Kiwibank which got distribution at close to cost.
Now they are investing in costly big (aka bad) bank IT systems and stores yet the CEO said back in February that "the main growth opportunity for Kiwibank now is in its existing customer base" - this at seems to be working given the numbers since they made a meaningful entry in to KiwiSaver and Life Insurance a couple of years back).
Hopefully, the accounts will shed light on the rising costs (surely, big IT spend would be capitalised?) but seems they are only going to increase and the short term effect of 80 redundancies which will no doubt be offset by the annual round of pay increases in the exec team, where there have been no reported casualties.
I wonder if the TAB will take a bet on "Kiwibank dividend in 3 years"
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