Kiwibank half-year profit falls 41%

Kiwibank interim profit drops as bad debt provisions more than double

24th Feb 11, 10:01am by Gareth Vaughan

Government owned Kiwibank says profit for the six months to December 31 fell 41% as bad debt provisions more than doubled.

Kiwibank, a subsidiary of New Zealand Post, said today its first half-year profit fell to NZ$13.9 million from NZ$23.5 million in the same period of the previous financial year.

Chief Executive Paul Brock, who replaced founding CEO Sam Knowles in September last year, said the biggest impact on the results was the increased provision for bad debts. This jumped to NZ$45.5 million from NZ$19.5 million.

Brock said these were largely unsuccessful business investments and "very few" involved domestic home owners. Kiwibank's level of at-risk loans remained very small compared with Kiwibank's total lending portfolio and reflected the dropping value of "certain classes of property collateral" and remained "modest" when compared with other banks.

Kiwibank also said impairment losses more than trebled to NZ$31 million from NZ$9.7 million. Total assets rose 8% to NZ$12.9 billion with impaired assets, including all assets where interest charges have been suspended and a specific provision has been raised, at NZ$63.9 million.

Brock said Kiwibank's total lending, incorporating home loans, business banking and credit cards, rose by 5% to NZ$10.9 billion from NZ$10.4 billion in the six months from July to December. Retail deposits increased 10% to NZ$7.6 billion from NZ$6.9 billion.

Kiwibank's total income rose NZ$15 million, or 10%, to NZ$169 million and operating expenses climbed NZ$7 million, or 7%, to NZ$118 million. Net-interest-income rose to NZ$89.3 million from NZ$66.3 million, or from 1.19% to 1.42% of total assets. Brock said the increase was largely driven by higher margins from variable, or floating, mortgages compared with fixed term loans.

Brock said Kiwibank's Notice Saver "no-term" deposit, has attracted more than half a billion dollars in less than six months. The outlook for continued growth of the bank, which has the taxpayer providing an emergency "uncalled capital facility", and is expanding into the finance company space through the launch of Kiwi Asset Finance, remained positive.

“After nearly nine years we are continuing to build market share; continuing to build our loan and deposit portfolios and most importantly continuing to make a positive impact on the New Zealand banking sector," said Brock.

(Update adds additional detail).

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12 Comments

by andyh | 24th Feb 11, 10:42am 1298497363

''Brock said these were largely unsuccessful business investments and "very few" involved domestic home owners''

Hmmm I am guessing there is a fair bit of sleight of hand in that comment. Many of the residential mortgagee sales we have seen in Nelson have been folk having to sell because their business has gone bust and loans were raised to fund said business on their house.

by Wolly | 24th Feb 11, 2:05pm 1298509518

"...Kiwibank's level of at-risk loans remained very small compared with Kiwibank's total lending portfolio and reflected the dropping value of "certain classes of property collateral" and remained "modest" when compared with other banks."

Really...."modest"....so how bad are the other banks....another drop in the property market is almost certain....what will that mean?

by Andrewj | 24th Feb 11, 2:10pm 1298509828

Kiwibank should explian what this is going to do to its customers

http://finviz.com/futures_charts.ashx?t=CL

Its hard to get back to bussiness, if anyone needs a hand sing out.

Andrew

by Grant A | 24th Feb 11, 2:52pm 1298512335

Lets put more tax payer money into Kiwibank to help it out ?

by interested observor | 24th Feb 11, 3:21pm 1298514067

andyh ...

you are exactly right and you will see more and more of these mortgagee sales relating to failed business in the coming year as the banks clamp down on business...

The frightning thing is Kiwibank have admitted their venture into "business banking" has not been good - seems they may have taken on the business other bank's wanted to get rid off...

The more frightening thing is the taxpayer input is going into funding a " new finance company arm" - haven't we as taxpayers paid enough for failed finance companies already? !!!

by Andy Rodgers | 24th Feb 11, 5:26pm 1298521601

Paul Brock is doing what all banks CEO's do, he is going for growth at any cost. If Kiwibank succeeds (very unlikely) with this strategy he will get huge bonuses. If it fails he will walk away with a very nice severance payment. Heads he wins tails the taxpayer loses. With Michael Cullen as your boss what else would you expect?

by Wolly | 24th Feb 11, 4:21pm 1298517678

It is crystal clear the current policy remains to inflate the market with cheap credit and Kiwibank sees that as a goal....growing their mortgage porfolio. In other words the govt and the RBNZ are happy to follow Bernanke. The Kiwi$ is being debased about 5% this year alone. Those who gambled on using the cheap credit for whatever are being supported by this policy which is thieving from savers and those who were prudent during the mad bubble.

So govt policy supports housing remaining seriously unaffordable with section prices at stupid levels. With that going on there is no bloody way people can save to buy a home without using a mortgage....and that is exactly what the banks have been aiming to achieve.

Meanwhile the price of oil is set to shoot higher and this will flow through to every food item and item of building material etc etc. Inflation is not just caused by printing and flooding markets with paper money...!

Commodity prices could drop overnight as the world markets wake up to the American market fraud.

So we have this report on the Market Oracle:

"What has emerged in the global financial arena over the past couple of years is the interplay among easy money, low interest rates, international trade imbalances, financial flows, and exchange-rate manipulations. The failure of attempts to cure overindebtedness with more debt, and to stimulate weak economies by giving them interest rates as low as possible, provokes a repetitive pattern of bubble and crash where each phase ends in a higher level of government debt"

http://www.marketoracle.co.uk/Article26493.html

by Money Man | 24th Feb 11, 9:52pm 1298537523

Wolly,

Lending on property has been a core fundamental of banks for 100' of years:

With that going on there is no bloody way people can save to buy a home without using a mortgage....and that is exactly what the banks have been aiming to achieve. ""

Do you seroiusly believe that people saving a deposit and getting a loan from banks, Building Societies etc has just appeared in the last 20 years or so.

The only reason Banks pay savers interest is the interest it receives on its loans.

If Banks didn't lend it wouldn't need deposits from savers: could be like Japan where interest rates for borrowing is close to 1% and deposit rates are practically nil.

Wolly, from your comments you appear to want high rates for deposits but put the boot into Banks when they provide mortgage and other finance to provide that income to pay savers interest.

Be great to know how you can achieve both aims.

by Wolly | 25th Feb 11, 8:26am 1298575606

What you are not aware of money man is the change over time in the attitude of the banks to lending created credit into the property sector. In the 60s asking for a 75% loan would have brought laughter from a bank manager. You would have been lucky to get 25%. Today the laughter continues and you get asked to borrow 95% and told, your balance sheet is lazy!

So why don't you show us all how good you are by explaining why this change in attitude took place and while you are at it...tell us who benefits from this new age financial game.

by Money Man | 25th Feb 11, 11:17am 1298585875

I see you didn't asnwer my question on how you achieve both of your aims. (interest for savers but don't lend out any money).The balance of the lending required to purchase a property (as Banks did restrict their lending to either 66% or 75%) in many cases was made up of 2nd and 3rd mortgages from Lawyers Nominee comapies, Building Socities & Credit Unions etc and deposits via capitalisation of the old family benefits. A people paid higher rates (as expected) on these subsequent loans.Wollyy, the lending against the properties was still there, just spread around other entities as subsequent charges /mortgages.

I have not seen a second mortgage on a property for over 15 years and by the way Countrywide Bank was doing 90% mortgages back in the very early 1990's

by Tranny | 25th Feb 11, 8:04am 1298574274

If it wasn't for kiwibank I beleive we would be paying more on our interest rates for mortgages and less on our money for deposits and all the profits continuing to go over to Australia. On top of that when was the last time the NZ taxpayer actually tipped money into Kiwibank????The good thing is the bank is still making a profit and the money has stayed on shore at a time when we need it to stay here after whats happened in Christchurch. I'd be interested to see the profit announcement in 6 months time to see if this is a one off blip or a continuation of things to come. My guess and hope this is a one off blip.

by Number 6 | 25th Feb 11, 8:52am 1298577148

Kiwibank the 'state bank' of New Zealand. A bit like those other 'state' banks; the State Bank of New South Wales; tht e State Bank of Weteren Australia; the State Bank of South Australia and the best one of all, the State Bank of Victoria. All little banking entities set up to attract local savings and recycle them into 'cheaper' mortgages for their respective populations. How many of them exist, today? None! The SSBV was the classic re-run of what will happen to Kiwibank. It will find it needs to 'compete' with the majors by adding other market sectors to its business, other than the 'recycling' to survive. Then comes the likes of the insurance arm; and the finance company arm etc. Have a google of Tricontinental Corp, Tranny. The finance arm SSBV took over! It took the bank, and nearly the state of Victoria down with it. It was eventually sold to CBA for - A$1 - but the CBA had to take on all the debt as well. Have a look at what happened to SBSA- ditto. That's what awaits Kiwibank. Can New Zealand afford another 'state' bank disaster on top of the recent one with the 'finance companies'?