PSIS seeks to change trust deed ahead of lodging a bank registration application with the Reserve Bank

PSIS seeks to change trust deed ahead of lodging a bank registration application with the Reserve Bank

Fresh from obtaining an investment grade credit rating, co-operatively owned financial services provider PSIS is launching its promised push to become a bank.

PSIS says it needs to change parts of its deposit arrangements by tweaking its Amending and Supplemental Trust Deed and will hold a vote of its first ranking stock holders on Wednesday July 27 in Wellington following its annual meeting.

"Crucially, PSIS is able to remain a co-operative and be 100% member-owned as well as being a registered bank," PSIS says.

"Becoming a bank should make it simpler for the market to understand what we do. Apart from that, we'll continue to be 100% member focused, as we always have been. The Board of Directors and PSIS Management are unanimously in favour of moving forward with bank registration and would appreciate your support."

Meanwhile, PSIS today posted a NZ$6 million, or 46%, drop in annual profit. Its profit after tax for the March year fell to NZ$7.1 million from NZ$13.1 million in the previous year.  Total income fell NZ$5.5 million, or 8%, to NZ$62.1 million and total expenses rose NZ$1.8 million, or 4%, to NZ$52.8 million.

Interest margins fall

PSIS chief executive Girol Karacaoglu told interest.co.nz the profit fall came as interest margins fell to 3% from 3.7% amid competition, both for retail funding and in the home loan market. Net interest income fell NZ$6.6 million, or 13%, to NZ$43 million.

In a statement PSIS said its loan impairments and losses would've been down 20% if not for the Christchurch earthquakes. Karacaoglu told interest.co.nz the previous year's bad debt charges were NZ$3.2 million and the March 2011 year plan was for NZ$2.6 million worth, before earthquake provisioning.

"We looked at the industry at large and said 'what sort of rule of thumb is being applied in the banking world' and in our view it's something like 100 basis points on the exposure," Karacaoglu said. "Of our total (loan) book of NZ$1.2 billion, we have NZ$100 million exposure to Christchurch and 100 basis points on that is NZ$1 million."

"Had it not been for that (NZ$1 million) provisioning our reported profit, instead of being NZ$9.3 million before tax, it would have been NZ$10.3 million."

Meanwhile, he said arrears in Christchurch were "still travelling very well", but noted it was still early days.

Retail deposit volumes rose 4% in the March year to NZ$1.162 billion and PSIS raised NZ$100 million of wholesale funding through an issue of Residential Mortgage Backed Securities. The co-operative's loan book grew 4% to NZ$1.163 billion and its capital adequacy ratio dropped to 10.1% from 10.3%.

"While hopefully the worst of the global financial crisis is behind us, times remain uncertain and the New Zealand economic environment continues to be challenging," said chairman Sir David Gascoigne.

See results detail here and press release here.

S&P upgrade precursor to bank move

The bank push comes after Standard & Poor's upgraded its credit rating on PSIS to BBB- from BB+ in late May. This came after Karacaoglu told interest.co.nz last December that he was hopeful S&P would lift its credit rating on PSIS to BBB- , its lowest investment grade rating which is seen as a necessity for a bank licence application, and PSIS then planned to apply to the Reserve Bank for bank registration.

The objective in seeking bank registration is to create a new, unique co-operative banking business that's community based and commercially sustainable, PSIS says.

"The new business will combine the existing financial services business of PSIS with an improved capacity to expand into new areas such as small-business banking."

PSIS says it will seek to become a bank on or before December 31, 2013. Bank registration would render PSIS trustee Guardian Trust redundant.

First ranking stock holders will be asked to agree to give up their position ahead of other claims in the event of PSIS' insolvency, other than prior charge holders, and rank alongside other unsecured, unsubordinated debt holders. The support of 75% of first ranking stock holders will be required through an extraordinary resolution at the special meeting. See more here on PSIS' website.

The process of obtaining bank registration from the Reserve Bank carries no guarantees and can take a year or two. See more in a Reserve Bank booklet here.  Heartland New Zealand, the merged Marac Finance, CBS Canterbury and Southern Cross Building Society, also plans to apply to become a bank saying it will do so in the second half of the year.

(Updates add comments from interview with PSIS CEO Girol Karacaoglu, annual results and further detail).

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

1 Comments

Comment Filter

Highlight new comments in the last hr(s).

I have updated this with some comments from PSIS chief executive Girol Karacaoglu.