Ten year-old Kiwibank has posted record annual profit, and a 276% year-on-year profit jump, as customers switching from fixed to floating mortgages helped push up net interest income 35%. The bank also benefited from a drop in expenses and lower impairment allowances.
The bank, a subsidiary of state owned enterprise New Zealand Post, said today profit after tax for the year to June 30 surged NZ$57.9 million to NZ$79.1 million from just NZ$21.2 million the previous year. The record annual profit came despite Kiwibank recording its lowest annual lending growth yet of 8%, which was below last year's 10%. Annual deposit growth, at 9%, was the second lowest recorded after 3% in 2010.
Kiwibank's previous record annual profit of NZ$63.6 million was made in the year to June 30, 2009.
Chief executive Paul Brock said lending over the year rose about NZ$900 million to NZ$12.4 billion and customer deposits increased about NZ$1 billion to NZ$11.6 billion.
Brock said the strong results were largely attributable to net interest income increasing during the year as customers switched from fixed to floating mortgages. Kiwibank's net interest margin rose to 1.79% from 1.47%.
Banks' bottom lines have been bolstered by customers' switching to floating, or variable, rate mortgages from fixed-term ones over the past couple of years. Banks do better out of floating mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between the swap rate and fixed rate mortgages.
The overall industry percentage of home loans by value on floating rates hit its highest level of 63% in April since the Reserve Bank began keeping fixed v floating records in 1998, but has since dropped back slightly. Brock said about 60% of Kiwibank's home loans by value were now floating up from about 56% at June 30 last year and 38% at June 30, 2010.
Kiwibank's net interest income rose NZ$66 million to NZ$257 million. The bank's impairment allowances more than halved to NZ$35 million from NZ$79 million and total annual expenses fell NZ$13 million, or 4%, to NZ$308 million.
Brock said customer deposits accounted for 83% of all bank funding and the annual result represented “a significant bounce back from the financial stresses of the last few years”. However, he said the economy was “not yet out of the woods” and provisioning for bad debts remained a concern. Total provisions for impairment losses stood at NZ$91 million as at June 30, up NZ$4 million year-on-year.
Meanwhile, Kiwibank said its operating expenses to total income ratio fell to 65.1% from 68.5% and its impaired assets fell NZ$22 million to NZ$84 million, or 0.67% of gross loans from 0.92%. Total capital increased NZ$48 million, or 7%, to NZ$785 million.