Kiwibank taps European commercial paper for 'hundreds of millions' of dollars in short-term funding

By Gareth Vaughan

Kiwibank has used the European commercial paper programme it set up late last year to secure hundreds of millions of dollars in short term funding, says the state owned bank's CEO Paul Brock.

In a Double Shot Interview Brock told interest.co.nz this week Kiwibank had continued to tap the European market for shorter-term funding. Brock told interest.co.nz last year the commercial paper programme had been established as part of Kiwibank's push to diversify funding sources with the bank able to draw down what it needs when it needs it.

Asked if it was 90 day money Brock said: "I wouldn’t want to go into the specifics, but it’s the shorter end." And asked if tens of millions of dollars had been sourced through the programme Brock said it more than that, indicating it was a figure in the hundreds of millions.

After raising A$250 million in five-year bonds in Australia in 2009 in the bank's  first foray into the international wholesale bond market, it remains keen to tap the Australian market again and undertook an investor roadshow over there last year.

"The Australian market conditions have not really been favourable for any deals there at this point," said Brock.

"We’ll keep watching that and obviously our long-term view is we want to continue going back to the Australian market. (But) we’re looking for favourable conditions before we go there. To some extent that will depend on the level of growth Kiwibank’s putting in place," Brock added.

"We are getting very strong funds growth in the retail space at the moment so that holds us in good stead in terms of our ratios and things that we need to hold for the Reserve Bank."

In its recent interim results presentation Kiwibank said its retail deposits rose by 10.6% in the year to December 31, 2010 to NZ$7.6 billion. Wholesale deposits rose 23.5% to NZ$3.5 billion.

Kiwibank's drive to diversify its funding follows the introduction by the Reserve Bank of the core funding ratio (CFR) on April 1 last year. The CFR sets out that banks must source at least 65% of their funding from retail deposits and wholesale funding sources with durations of at least one year. The central bank wants to increase the CFR to 75% by about the middle of 2012 to offset New Zealand banks' previous reliance on international wholesale, or 'hot' money, markets.

Sam Knowles, who Brock succeeded as Kiwibank's CEO last September, noted the introduction of the CFR meant Kiwibank's rival Australian owned banks - ANZ, ASB, BNZ and Westpac - were now competing harder for retail deposits, meaning New Zealand owned financial institutions could only compete by going offshore to source funding.

Meanwhile, Brock described covered bonds as "an attractive instrument" for the raising of funds. He said Kiwibank was having "a good look" but wouldn't be issuing covered bonds in the immediate future.

Life Insurance business planned

Brock also said Kiwibank, a subsidiary of New Zealand Post, planned to set up its own life insurance - or "bank assurance" - company this year. That's on top of the finance company, Kiwi Asset Finance, the bank is also launching.

"That (life insurance) is a key area of focus for us right now," Brock said. "We are building a start up life insurance company like we built a start-up Kiwibank."

The bank intended to launch the new insurance business this year and Brock hoped it would both see Kiwibank do more business with existing customers and secure new customers.

"The key there is to make sure we can offer to all our existing customers a good deal on their life insurance," Brock said.

"When we’ve got 750,000 odd customers there’s an opportunity as we look at it today with our existing customer base firstly. And many of those customers, of course, have switched to us from other banks where they have life insurance as well. (So) in the case of new customers, certainly in the life space, we do expect that we’ll attract new customers just in the insurance."

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