Outgoing Kiwibank CEO Sam Knowles has mounted a spirited defence against suggestions from rival bank boss Ralph Norris that Kiwibank hasn't generated enough capital internally from its own profits. Knowles said Norris was wrong and ought to "get his calculator out.”
Asked about recent comments from New Zealander Norris, CEO of ASB’s parent Commonwealth Bank of Australia, at Kiwibank’s annual results briefing yesterday, Knowles defended Kiwibank’s profitability and the returns generated on the taxpayer funds the state owned bank has received. He said Kiwibank’s June year results had delivered an 11.5% return on shareholders funds at the bottom of the recessionary cycle.
“I think Ralph needs to get his calculator out and actually look at the numbers,” Knowles said.
Kiwibank opened for business in February 2002 with NZ$80 million of taxpayer funding via the government. About another NZ$230 million had been pumped in since, via parent NZ Post. Kiwibank, which has never paid the government a dividend, had also retained earnings worth about $175 million.
“The value of the bank today is somewhere between NZ$800 million and NZ$1 billion,” Knowles said.
“So there’s at least NZ$500 million, if you like, of value that has been created in the eight years I’ve been involved in the bank and that’s a very good return.”
Knowles' comments came after the government announced it had agreed to a request from Kiwibank's parent NZ Post to provide an uncalled capital facility valued in the "low hundreds of millions" of dollars to the group to help maintain NZ Post and Kiwibank's AA- credit ratings and enable Kiwibank to keep growing.
Finance Minister Bill English and SOEs Minister Simon Power said the provision of uncalled capital, on commercial terms, will give NZ Post and Kiwibank the financial certainty they need to pursue their plans and sat alongside other government measures such as allowing Kiwibank to retain profits and requiring a lower dividend from NZ Post.
Norris, formerly CEO of ASB, recently told Radio Live’s Andrew Patterson that Kiwibank had essentially undercharged for too long and was now reaping the fruits of not being profitable enough.
"The situation for any business is that if you're under pricing your products then you're not generating enough capital to grow your business,” Norris said.
“There's always the balance of getting your pricing right in order to make sufficient profit to generate capital within the business."
It was a classic example, Norris said, in a lot of businesses that over-trade.
"They don't have enough equity and therefore they get themselves into potential difficulties because of that. I'm not saying that that's the case in terms of potential difficulties for Kiwibank," he said.
"(But) you've got to make a reasonable level of profit to generate internal capital and that doesn't seem to have been the case with Kiwibank."
However Knowles said, taking the broader banking market into consideration, Kiwibank’s existence had prevented somewhere in the vicinity of NZ$1 billion to NZ$2 billion in profits being sent to Australia.
So all up Kiwibank had delivered a “great return” for taxpayer investment of NZ$310 million.
“I think if Ralph actually went through the numbers he would be quite surprised at the level of return we’ve achieved,” Knowles added.
“What he’s concerned about is that we are a challenger in the market and we are probably stopping him making more profits.”
Norris, meanwhile, did acknowledge the entry of Kiwibank into the market had forced Australian-owned rivals such as ASB to send their customers the message that they were New Zealand banks too.
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