Impairment losses eat into Kiwibank profit; No-term deposits attract 'several hundred million dollars'

Kiwibank recorded a 37% drop in September quarter profit as the state owned bank absorbed a 74% increase in impairment losses on loans with the bulk stemming from its business customers.

Kiwibank’s September quarter General Disclosure Statement (GDS) shows the bank’s profit after tax fell to NZ$8.66 million for the three months to September this year, down from NZ$13.86 million in the same period of last year. This came as impairment losses on loans and advances jumped to NZ$9.53 million from NZ$5.48 million.

Kiwibank CEO Paul Brock told interest.co.nz the increase in impairments could largely be attributed to a small number of business customers the bank had been working with for some time.

“And at the point that we’ve come to look at realizing those assets, obviously the market values are a bit lower than what we’d expected so the provisions consequently are higher,” Brock said.

“It’s not a surprise, it’s stuff we’ve been working through for some time.”

He said there was probably still a “bit more to come” in terms of working through impairments before they started improving.

“It really depends on the speed of the economic recovery,” said Brock.

“We seem to be stopping and starting a little bit so my sense is it has got a relatively long tail on it so it will take a little bit longer to come out.”

Kiwibank’s interest income also fell, down NZ$10.28 million to NZ$167.42 million.

'Hundreds of millions' flocks to no-term deposits

Meanwhile, Brock said Kiwibank’s recently launched ‘Notice Saver’ product, or no-term deposit which it touts as a New Zealand first, was going better than expected.

“We’ve probably got several hundred million dollars, and we’ve only been going a few weeks, already come into that account which is great,” Brock said.

“A lot of that has come to us from other banks as well, which is great.”

The Portfolio Investment Entity (PIE) compliant Notice Saver offers interest at 5.00% per annum and requires a minimum deposit of NZ$2,000. Savers can withdraw some, or all, of their money by giving Kiwibank 32 days notice. Brock said customers’ appeared to appreciate not having to “constantly ring up” when their deposit was due to mature.

In the September quarter Kiwibank's mortgage book grew by about NZ$279.3 million to NZ$9.9 billion. Of the other banks with September quarter GDSs out so far ANZ and Westpac recorded growth of about NZ$317 million and NZ$268 million, respectively, with ASB's mortgage book contracting.

Brock said although activity in the housing market had picked up a bit recently, it wasn't "anywhere near" the sort of lift normally seen at this time of year.

(Updates add mortgage book paragraphs).