Wannabe bank PSIS plans pilot lending project to hairdressers, taxi drivers, plumbers and electricians

Wannabe bank PSIS plans pilot lending project to hairdressers, taxi drivers, plumbers and electricians

By Gareth Vaughan

As it sets off on pursuit of a banking licence, PSIS has all but ruled out merging with another New Zealand financial services provider. And rather than growing its membership per se, co-operative PSIS would rather nab all the banking done by its existing customer-members.

Mergers among New Zealand owned financial service providers have been a feature of the local market in the post global financial crisis world against a backdrop of higher funding costs. The mutually owned SBS Bank acquired Hastings Building Society last October in what it sees as its first step towards creating a national community bank. And Marac Finance, CBS Canterbury and Southern Cross Building Society have merged to create Heartland NZ, and plan to acquire PGG Wrightson Finance's good rural loans and chase bank registration from the Reserve Bank.

However PSIS, with total assets of only NZ$1.45 billion and a loan book of just NZ$1.16 billion, plans to go on alone.

Co-operative status 'non-negotiable'

Asked about merger possibilities after releasing the co-operative's financial results for the year to March, which showed a NZ$6 million, or 46%, drop in annual profit after tax to NZ$7.1 million, PSIS chief executive Girol Karacaoglu told interest.co.nz: "There is nothing going on in that space whatsoever."

"Over the years we've looked at all kinds of opportunities and options but the reality is we have now firmly decided to go it alone and there is not going to be any deviation on that for the foreseeable future," Karacaoglu said.

He did add, however, that over the long-term "you never know" as there was a "very compelling" case for marriages between various institutions of the same ilk.

"But it's not a trivial matter to achieve that."

And Karacaoglu did acknowledge that having wider and bigger scale would be nice.

"The reality is, however, that larger scale needs to bring us two or three things critical to add value. It's not just the size. It needs to diversify our income base, it needs to bring more membership, more capital and critically for us, and where I'm confident it will be very difficult to pursue, we are non-negotiable on our co-operative status," said Karacaoglu.

"And there is no other co-operative in the world we live in in New Zealand, that is the financial services world. There are other mutuals but none are co-operatives and that is a show stopper for us. That's a precondition and that's why I don't think it (a merger) will happen."

Former RBNZ staffer on board to help with bank aspiration

Having secured a BBB- investment grade credit rating from Standard & Poor's last month, Karacaoglu said PSIS, which has about 320 staff, had now crossed the first line in its pursuit of obtaining bank registration from the Reserve Bank. However, Karacaoglu said the co-operative wasn't pre-judging the outcome of its application and expected it to be a one to two year process costing several hundred thousand dollars.

Douglas Widdowson, a former adviser on domestic deposit taking oversight at the Reserve Bank, is now working for PSIS in risk and as a secretary to the co-operative's board. Karacaoglu said Widdowson was "certainly helping" with the push for bank registration.

"Registering as a bank is putting ourselves on a platform where we can differentiate ourselves from others," Karacaoglu said. "The differentiation strategy is very much about cooperativeness. Our differentiation is our cooperativeness."

Pilot project for lending to hairdressers, taxi drivers, plumbers and electricians planned

In the meantime, PSIS plans to pilot a lending project to small businesses through four or five of its 32 branches this year. Karacaoglu said if the pilot was successful, the project would be rolled out to all branches.

"We want to diversify our income base without moving too far away from what we know which is personal banking."

This would also include looking to grow personal lending - outside of home loans - and personal insurance. PSIS' personal loans currently comprise about 10-15%, or NZ$100-NZ$150 million, of its NZ$1.2 billion loan book, and life insurance fee underwriting about 10-12% of total income.

As for business lending, Karacaoglu said between 20,000 and 30,000 of PSIS' about 130,000 members had an association with small businesses such as hairdressers, taxi drivers, plumbers and electricians. But any move into this space would be a cautious one with loans secured against member-customers' property.

"At the end of the day even if you look three years forward, we are talking about NZ$25 million to NZ$50 million of business relative to a (loan) book of about NZ$1.2 billion," he said. "So it's going to be extremely small."

Nonetheless, he said a reason for the push into business lending is because members have always said one reason they don't do all their banking with PSIS is because it doesn't offer this kind of business banking service.

As for membership, Karacaoglu said this had been growing at about 2,000-3,000 net per year over the last five to seven years and maintaining that would be an achievement.

"The fundamental point you need to understand is growing our balance sheet and growing our membership aggressively is not part of what we are all about," he said.

"Our current focus with regard to members is more about doing more business with our current members than about growing our membership. Strategically in the next few years the main focus would be in convincing more of our members to do all their banking with us. That's the critical issue."

A step towards this would be paying dividends to members, based on how much business they did with PSIS.

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