State owned Kiwibank borrows NZ$927.3 million from European short-term 'hot money' market

State owned Kiwibank borrows NZ$927.3 million from European short-term 'hot money' market

Kiwibank borrowed more than NZ$900 million from European short-term 'hot money' markets within about five months in its own 'Overseas Experience'

By Gareth Vaughan

Kiwibank borrowed NZ$927.275 million through a European commercial paper programme within about five months of establishing it, the bank's latest General Disclosure Statement (GDS) shows.

The state owned bank's GDS, for the nine months to March 31, lists the debt under a "short term paper" category not present in previous disclosure statements.

Paul Brock, Kiwibank's CEO, told at the end of November last year the bank had established a European commercial paper programme within the last month as part of its drive to diversify funding sources. He declined to say how big the programme was.

"It’s basically a programme that has been put in place so we can draw down what we need (when we need it) so I’m not going to go into specifics about what numbers," Brock said then. In a more recent interview, in March, Brock indicated Kiwibank had borrowed hundreds of millions of dollars in short-term loans through the programme.

Big, Aussie owned rivals competiting hard for retail money

Kiwibank's push into short-term, overseas lending comes at a time when its big Australian owned rivals are competing fiercely for domestic retail deposits in order to meet the Reserve Bank's Core Funding Ratio (CFR). In place since April 1 last year, the CFR sets out that banks must secure at least 65% of their funding from a combination of retail sources and wholesale sources - such as bonds  - with durations of more than 12 months. The CFR will be increased to 70% from July this year and then 75% from July next year.

This competition for retail money has hit the cost of funding for New Zealand owned institutions such as Kiwibank and TSB Bank. The latter posted a 22% fall in annual profit last week with CEO Kevin Murphy saying TSB's net interest margins dropped to 1.88% from 2.19% because of competition for retail deposits.

Kiwibank's GDS also shows the bank's profit collapsed to just NZ$814,000 in the March quarter from NZ$12.2 million in the same period of last year as impairment losses on loans ballooned in the wake of the February 22 Christchurch earthquake. There was also a NZ$266.6 million drop in the bank's deposits to NZ$10.8 billion, with a NZ$444.6 million drop in wholesale deposits offsetting a NZ$178 million rise in retail deposits.

Meanwhile, the GDS also has Kiwibank's mortgage book up NZ$244.713 million in the March quarter to NZ$10.325 billion. That puts it ahead of ASB's NZ$48 million growth and Westpac's NZ$170 million, but behind BNZ's NZ$311 million March quarter rise. ANZ is yet to release its March quarter New Zealand Branch GDS.

Total net loans and advances, (after a NZ$67.4 million allowance for impairments up almost NZ$22 million), rose NZ$251.3 million to NZ$11.2 billion, Kiwibank said. Total assets rose NZ$877.6 million to NZ$13.8 billion and total liabilities increased NZ$883.5 million to NZ$13.25 billion.

The GDS also showed a  rise in Kiwibank's assets past due by more than 90 days to NZ$38.7 million at March 31 from NZ$29.6 million at June 30 last year,  with impaired assets having more than doubled over the same time period to NZ$90.3 million from NZ$37.7 million.

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Isn't this exactly the sort of thing the IMF has told us not to do?

Our state owned bank is borrowing heavily and cheaply in the hot European money markets (the ones that could blow up at any moment) and then funneling back into the New Zealand housing market.

Kiwibank was the second biggest mortgage lender in the March quarter, only just behind BNZ.

It is offering cheap mortgage rates and has decided not to compete as hard with the Aussie banks for term deposit funding. That's because it can borrow the money much cheaper offshore.

Kiwibank might argue this is an unintended  consequence of the Reserve Bank's Core Funding Ratio policy, which forces the Aussie banks to raise more local and longer term funding.

Until now Kiwibank has been able to get hold of local term deposit funds more cheaply. Now it has to compete a lot harder.

Essentially what is happening here is Kiwibank is importing Europe's loose monetary policy so it can keep growing lending as fast as possible.

How does this help New Zealand? It increases our foreign debt. It further pumps credit into an already pumped up housing market. It makes us more vulnerable to a meltdown on European financial markets.

It subverts the Reserve Bank's monetary policy. It encourages borrowing and discourages saving, by keeping term deposit rates lower than they otherwise would be.

This helps push up the New Zealand dollar and restrain our export sector.

The actions of the state-owned bank fly directly in the face of the government's avowed policy of trying to encourage savings and exporting, while discourage borrowing and spending in the housing market.

Why is Kiwibank doing this and putting taxpayer capital at risk in the process?



Bernard - whether state-own or not, they are just being what they are - a bank. If we want different behaviour, we need to have different rules.

What do you suggest in that regard?

Cheers, Les.


For a start the Reserve Bank should implement a loan to value ratio limit on mortgages, in the same way it is done in that bastion of free market freedom -- Hong Kong. Here's what is being proposed in Britain.

Then I think the Reserve Bank should lift its Core Funding Ratio to at least 90% from the currently planned 75% by mid 2012. That would ensure the funding at least partially matches the maturity on some of this lending.

Then the RBNZ should look at some of the risk weightings on rural and residential lending to take into account the fundamental overvaluation of this stuff.

I also think it should revisit the area of covered bonds. This is simply mortgage securitisation. It encourages more foreign borrowing.

We need to wean ourselves off this hot money. We still have foreign debt worth more than 50% of GDP rolling over every 90 days.

Ideally, we should reduce that vulnerability to something close to export receipts. That implies it needs to be something closer to 25% of GDP. Neither the RBNZ or the Government are targeting that at the moment.




Bernard - yes, to all that, but also RB to specify and vary the ratio of domestic to foreign funds through the cycle. It would work against the moral hazard banks face with high and increasing proportions of foreign funds (better that NZD high and getting higher); it helps NZ savers; reduces foreign debt; stops banks neutralising RB tightening policy by importing loose policy from elsewhere.

So next question, this is all RBNZ stuff, so what is holding them back?


Cheers, Les.


Was wondering if it is possible for the Govenment / Reserve Bank to legislate a two tier system for loans relating to property with a premium interest rate charged for all investment property loans?


Interesting line of thought. Other ideas in that vein - PI mortgage levy, ring-fencing or tighter LVR (higher deposit) for PI, as BH mention tighter risk-weightings/higher cap. buffers. Any others anyone? 

As far as the management see it this is risk free behaviour. If the debt markets shut down again (they will) and Kiwibank hits the wall - so what? They know the taxpayer will bail them out (too big to fail). Losses will be socialised.

It doesn't tell us much about the Kiwibank management other than they are taking the obvious route to maximise bank turnover (and presumably their bonuses which are tied to such performance targets).

What it does tell us is much about the current government/ reserve bank administration which have it in their power to do something about and prevent such taxpayer exposure; ie that neither are fit for purpose in this respect.

Maybe the Government will be able to package AMI, what's left of SCF  and, eventually, ( inevitably?) Kiwibank up into one parcel and move it over to Heartland Bank, to give it the mass it is looking for :)

If New Zealanders got out of the habit of banking with overseas owned banks we would not have this problem.

Could you flesh out your argument a little more ? ...... Not quite sure of your thinking here .

He thinks you should put your loot into Kiwibank do what you are told ok!

Well, if the argument that KB is having to compete on an equal footing for deposits with the overseas banks is correct, and I imagine from anecdotal evidence that it is, then it is, in global terms, in a rather unusual situation. In most countries a large proportion of the population can be expacted to bank locally, for whatever reasons, and this provides the local bank with an advantage Kiwibank does not have. So presumably Kiwibank is left with the choice of going to the Government, to overseas funds, or to the wall.

Correct Gummie's aged memory , but I thought that KB was set up to compete with the Aussie banks , merely on the basis of cheaper banks fees . The populence , stirred up by minor political parties , thought that the Ockers were gouging excessively on fee , on small accounts .

........ Nobody mentioned KB trying to out-compete the international banks on house mortgages , nor them offering 95 % mortgages ........

But then , Gummy does live in a simplistic little world ......

Ha ha. You may well be right. Can't remember. What were they supposed to do with the deposits? Can't remember that either.

Doesn't really matter though. Property lending has been front and centre of NZ banking for a while now, and Kiwibank have been in it up to their armpits for years.

This is a worrying senario. Kiwibank can call upon their ECP  prgramme to raise up to USD2 million of short term funding (1 - 364 days).

Cast your mind back to the demise of Northern Rock (UK) a few years ago. Basically they lent long and borrowed short. And the cards came tumbling down. Now I do know Kiwibank (and its competion) have strict liquidity ratio's they need to stick to. Lets hope they do, and the regulators are on the ball.

Another point - I cannot understand why   Paul Brock, Kiwibank's CEO declined to say how big the programme is. It's information freely available, as, if anyone is interested, how much of the programme has been utilized.






With Mr smarty pants" rich prick" Cullen in charge, anything could happen! I wouldnt trust Cullen to be in charge of of the PTA cake raffle money.

No Bobby that's not fair...The PTA cake raffle money would be safe with Cullen....he might arrange to employ a mob of Labour flunkies to help run the raffle and they might eat the cakes but the money would be safe with him.

Labour flunkies ! Those fairy cakes would go down well , at a Cake & Bake sale ........

....... But Wolly , if you ordered a dozen pikelets from Master Baker Cullen , how do you know you wouldn't receive just 7 , and he'd keep the other 5 for the state ?

I have complete faith in his honesty Gummy...he would deliver me the 12 cakes...ok the total weight might be down by 5/12ths ! but 12 cakes it would be....notice how Nescafe have reduced their 200gram bags of cawfee to 180 at the same stonking high price...and we don't have inflation do we Alan....!

I have been predicting for 3 years now, that Kiwibank will cost the taxpayer billions by being the last and biggest sucker in the mortgage and housing bubble game. Kind of like Fannie and Freddie in the USA. It would not surprise me at all if Kiwibank are being pushed politically, to try and keep the bubble inflated a bit longer.

Les Rudd asks a good question. I have also been saying for years, that the only honourable thing a bank can do under conditions of supply-induced property price bubbles, is QUIT THE INDUSTRY ALTOGETHER. Anything else would be "failure to compete".

The Korean Real Estate experience is interesting, see:


The government tweaks mortgage loan-to-value requirement ratios from 50% to 60% and back, according to boom/bust conditions, and they STILL have volatile property price trends.........for which "easy credit" is the cause, is it.....?????


I am not the only one suggesting that Korea's green belts and planning processes have EVERYTHING to do with this; academic debate in Korea on this subject is some of the most enlightening in the world, and some of it is available in English, I am finding.

How about Kiwibank not lending more money than it has in deposits? For example if Kiwibank has $1,000 in deposits it can only lend $500. At most.

Deanbo, Dont make it  too simple for Cullen to understand some common sense thinking. Next thing he will want a rise to his big fat bloated salary.

Deanbo good in theory, though its not the amount on deposit but the speed of the money in circulation that stil causes problems.

Bank 1 has $1m on deposit, and ignoring prudential reserves, bank lends me $1m, I then buy a house with the funds, and the vendor who has no mortgage places the money back with Bank 1, so they now have $2m on deposit, $1m on loans, and $1m to lend. even if the money went to another bank, there is now $1m more than before available to be lent.

If this happens every day lending grows by $1m per day per loan per bank.

Add in many transactions, and throw in some overseas borrowings and the more transactions the more assets and liabilites are created. i.e. current situation.

A little simplistic but shows how limiting lending to deposits still has a multiplier effect, though reduced from the above example if you limit the amount that can be lent, i.e. your 50%. You will still be able to lend 500+ $250+ $125+ $67.5+33.75 and so on. Original $1000 now becomes $999 lent after 10 new loans transactions.  Obviously if you pay off debt then you stop it, which is not good if you have an infrastructure based on lending.

As you can see its the speed of lending that is altered, at limiting lending to 50% of deposits then takes 10 transactions to lend $1m as opposed to 0% limit  takes 1 transaction to lend $1m.


How is it that Kiwibank can have current assets of $1b and current liabiities of $11b ie working capital of -($10b) and say that it is effectively managing liquidity risk? 

In Kiwibanks disclosure statement it makes numerous references to liquidity ratios - all refer to zero % (guess that is a typo?) and making use of the securitization program offered by the Reserve Bank.

On the face of it they appear to be using the government as a bank overdraft.

What happens should the Government withdraw this program?

I regularly assess businesses credit risk for loan applications, and frankly I would bin this one! 

I would seriously question Kiwibanks governence. They appear to be playing roulette. I'm gobsmacked. 

The finance sector is generally still mismatched in terms of liquidity, but nothing like this. They are really relying on the fact that depositors (retail) have nowhere to run, and placing huge reliance on the Government remaining solvent.

Great business model!




And I am frightened because I have a few deposits with Kiwibank. If they issue covered bonds or the Government privatises KiwiBank then I am out.  But where in the hell would I put them -.  under the mattress?  The big four are starting to look a little shaky and as far as I can ascertain the Government has only guaranteed their overseas borrowing not our deposits..  


Not to worry, Patricia. There's much more chance Kiwibank will be socialised ( taken onto the Government balance sheet) than being privatised, in the short term. And re the Big Four; If they go, it won't matter where you have whatever it is you have, the game will be over for all of us. So they aren't going anywhere. The Aussie Government would force a solution to any problems one or more may get into.

Thanks guys

The tax-payers of NZ stand poised and ready , to biff excrutiatingly mind bogglingly large amounts of $Kiwi into CullenBank ...... to bail it out .

...  It is worth it , for the service that it provides , in cheaper bank fees than those Aussie Bwanks ! .....

... and aren't the CullenBank tellers a friendly lot , makes it all worthwhile to potter on down there ....... to queue ..... and wait ....... wait a bit more ...... and finally to be snarled at , and sent to the back of the other queue .

.......... CullenBank : You sum up wot the great egalitarian socialists democratic un-republic of New Zealand is all about !

What is really sad is the confirmation bias in our policy makers – whatever happens, whatever any other jurisdiction does, whatever changes in the world, whatever we lose in productive capacity our well regarded policy framework remains immutable.

The only way to change them is to change them.  I wonder how long it is going to take and how much pain we will witness or ignore until it does.

Indeed John. Puritanical faith in what has failed us already. Pro-internationalism and anti-NZ sovereignty. Dismal.

Key etc are standing by watching this happen probably hoping KB will get themselves in trouble, then they can say "see told you so, banks shouldn't be state run".

But really if they were responsible owners of Kiwibank they would not be allowing it to happen.
So it's not really whether the government owns a bank or not, it's whether the government that owns the bank is responsible or not, these guys are starting to prove over and over again, they are not.

Nz has huge foreign debt levels. Most of this debt is balanced by property values. Property values are based on the last very small % of the housing stock that is turned over. I.e our housing stock valuation is hanging by a thread. And if prices fall, all of a sudden our debt becomes a real issue as it's no longer balanced against falling property prices.

Kiwibank are doing everything they can to prevent this breakdown in prices from occurring by trying to stick people with no money into big loans. If it works we avoid a huge fallout, if it doesn't then they're just going to make the fallout that much worse.

One of the factors not seen Simon is that the % of the public prepared to borrow and buy is shrinking's not just that property here and in aus is in a deflation spiral...the actual bodies entering the bank for booty are in decline too.



Would it be possible for Kiwibank to borrow such an amount from/in the New Zealand domestic market yes or no? Would it be possible (even at a higher cost)? Why should we allow cheap money to inflate domestic prices? At some point will become slaves to foreign countries? How would you feel about Kiwibank borrowing the same amount from the Reserve Bank? Would that be a better outcome? 


The problem is the margin.....variable mortgages are about 5.65% and deposits are about 4.6% (for 1 year)...1% margin is unusually tight (most banks liek 1.5%+) raising that to compete cant really be done, what could they do add 0.25%? is not going to make much difference....

Why should we allow cheap money?  its known as a free market economy where adults have the you really want the Govn controlling your life that much? I certianly the RB can effect via policy some they could limit the LVR ~ loan to valuation ratio at say 80% that would control prices quite well, throw in a CGT and that would also help....

"slaves to foreign"  Well guess what we (many of us) as individuals make the rational decision to borrow and gamble in the property market as PIs....its not rational at a national level but if Govn was to try and step in they'd get voted out....

Really the last Labour Govn should have done 7+ years ago like National finally did and took away the tax advantages to cool the market but they were desperate to stay in power at all costs and wouldnt risk losing any votes....

RB dosnt lend like that.....



I suppose KiwiBank issues the commerical paper denominated in New Zealand dollars....

In that case, it is not really "foreign" borrowing as such. Sure, European funds etc may buy the paper, but before that they are trading their Euros for New Zealand dollars. Essentially it is 'non residents' buying the debt, and a bunch of New Zealanders holding more Euros. This sort of transaction pushes up the value of the NZD, but apart from that it's not dreaded "foreign debt".



Kiwibank (with Government support) is actually in a great position right now provided Treasury is prepared to prop them up. If the growth that they are experiencing is at the expense of the "Big 4", ie stealing their better customers, then the "Big 4" will find asset quality begins to deteriorate rather quickly. Impaired assets will rise comparatively quickly as will past dues. Income will begin to diminish as will dividend flows across the Tasman. It will  create a more even playing field. I for one never understood how or why the OIO and Monopolies Commission allowed ALL NZs banks to be Australian owned. Talk about losing control and placing your destiny in the hands of someone else. Just silly.

They used to steal the "better" customers like me ie who had a very low LVR and were 10 years ago very conservative in the amount they'd lend....

As an example they would only lend about 2 x the gross salary ratio went I joined they'd lend nearly 5 times!!!!

So they have moved to 95% just like the big 4.  Also when you are a tail end mortgage holder then you have little left in a mortgage its hardly worth the effort to move...I saved $25 a month plus fees that ASB kept screwing me over I was $35 to $45 ahead a month, quite a lot for me 10 years ago.....but many ppl are amateur PIs and want hi LVRs to gamble in the property market with....these ppl also then pay a lot of interest, and probably have other profitable business with the bank,  just what the bank wants per customer....Im worth diddly to them....


According to the calculator on their website, Kiwibank will lend me just over 6 times my gross income... scary.

Kiwibank (with Government support) is actually in a great position right now provided Treasury is prepared to prop them up. If the growth that they are experiencing is at the expense of the "Big 4", ie stealing their better customers, then the "Big 4" will find asset quality begins to deteriorate rather quickly. Impaired assets will rise comparatively quickly as will past dues. Income will begin to diminish as will dividend flows across the Tasman. It will  create a more even playing field. I for one never understood how or why the OIO and Monopolies Commission allowed ALL NZs banks to be Australian owned. Talk about losing control and placing your destiny in the hands of someone else. Just silly.

Kiwibank is just reacting to the realities of the market its operating in. The RBNZ's increases in the Core Funding Ratio requirements triggered a major term deposit war amongst the local banks forcing deposit rates, and consequently borrowing rates, higher than they would have been otherwise. But the local deposit market is not big enough to finance the banks (we plain don't save enough surprise surprise).

So the banks, now including Kiwibank, continue to access the larger funding pools offshore. Its not necessarily "cheap" money because they take no FX risk and swap the funds back into NZ Dollars and hence pay NZ rates, but the fact that they're getting that portion from offshore markets takes the heat of the local deposit market and keeps borrowing & depsit rates lower than they would have been otherwise. And that "swapped" offshore funding cost then partly sets the rates for the  NZ market as they don't care which market they get it from (providing they stay with the required CFR)

Lets not get hysterical about Kiwibank we all know the Govt would bail them out, as would the Aust Govt with the Oz banks - therefore go figure which is the safer ?  That said about Kiwibank, I still struggle with the Govt using my tax dollars to provide social welfarism, and I really struggle with the concept of a Govt subsidising (permitting sub-par returns) one of its own entities to compete against the private sector - such practices in the long run hurt a market, as support for, and service quality, deteriorate over time.


By the way Kane, why did the Govt permit Australia banks into the NZ market ? because a strong banking system is key to faciliating credit and growth. Small countries with an inefficient small banking system are hugely vunerable in a time of crisis - go look at the banks in Ireland, Iceland, Greece etc - one of the reason we're not in their situation, by a million miles, is because we didn't have a banking crisis i.e. we didn't have 6 Kiwibanks. Big doesn't guarantee it, but small substantially increases that risk

On a different note. Whats everyones opinion on kiwibanks off set mortgages and will other banks follow. I'm very tempted by it