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'Fiercely' independent TSB to sidestep mergers and continue 100% retail funding model

'Fiercely' independent TSB to sidestep mergers and continue 100% retail funding model

Despite the prospect of heightened competition with New Zealand owned rivals looking for greater scale through mergers and big Australian owned rivals lifting their emphasis on securing retail deposits, TSB Bank has no desire to merge with anyone and plans to continue sourcing all of its funding from the retail market.

TSB managing director Kevin Murphy told the New Plymouth based bank was “fiercely” independent and intended to remain so.

“We’ve been successfully competing with both New Zealand owned and multinational banks for a number of years now and we don’t really see the emergence of other locally owned players presenting any additional challenges,” Murphy said.

Consolidation is ripe among New Zealand owned financial institutions with the Pyne Gould Corporation led Heartland Bank plans that call for PGC’s Marac Finance to merge with the Canterbury Building Society (CBS) and Southern Cross Building Society (SCBS), and SBS Bank’s merger talks with the Hastings Building Society as the first step in its plans to create a national Community Bank.

These moves come as the major banks step up competition for retail deposits to meet the Reserve Bank’s new core funding ratio which calls for banks to source 65% of their funding from retail investors and wholesale funding with terms of more than one year, and with the central bank also stepping up regulation of non-bank deposit takers.

“Yes, there’s certainly a lot more competition there, but we’re not looking to grow our profile by considering merging with anybody,” Murphy said.

With total assets of NZ$4.4 billion at March 31, TSB was nearly twice the size of SBS at NZ$2.6 billion. The Marac-CBS and SCBS plans envisage an entity with NZ$2.2 billion of assets that would seek an investment grade credit rating and banking licence from the Reserve Bank and list on the sharemarket.

Murphy also said TSB, which sources 100% of its funding from the retail market and always has, had no plans to look to the wholesale markets to raise funds. CBS this week revealed plans to raise NZ$100 million through a deal with Westpac that will see it sell residential mortgages into a funding warehouse and ultimately sell residential mortgage backed securities to institutional investors.

Murphy said while not discounting the possibility of tapping wholesale market funding sources sometime in the future, there were no current plans to do so.

“The 100% retail funding (model) has been a good model for us, it has been very successful for us and we believe the model we operate and the service aspect will enable us to continue to grow our business.”

He said after an 18 month period of “exceptional growth” TSB had seen growth slow in the last three to six months. Lending grew at 2.8% in the June quarter, he said.

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