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State-owned Kiwibank has more than tripled its full-year net profit at $79.1 million for the year to June 30.
The result, up $57.9 million on the same time last year, was “a significant bounce back from the financial stresses of the last few years”, said the bank’s chief executive Paul Brock.
Growth was largely a result of customers switching from fixed to floating mortgage rates – boosting the bank’s net interest income from a margin (when compared to average assets) of 1.47% to 1.79%.
Although there had recently been some movement back to fixed-rate mortgages, a much larger proportion of customers (60%) were still on floating rates.
The ratio of fixed to floating was expected to remain roughly the same for the year ahead.
“Generally in a flat environment we see more people on floating rates.”
Mr Brock said it was a hard market to grow in as people were focussed on paying back debt.
But customer deposits were 9% or $1 billion higher at $11.6 billion and lending had grown 8% or $9 million to $12.4 billion.
Kiwibank is now closing in on 10% of the main bank market share with more than 800,000 retail customers.
Its small business market share is about 4%.
Mr Brock expected to keep expanding the bank's market share by about 1% a year.
To do that, the first focus was to increase the share of existing Kiwibank customer wallets.
“We don’t have all their business and that’s because we’re not operating in all the markets we need to be operating in,” Mr Brock said.
New small business banking products were on the way and a life insurance product will be launched later in the year.
"We need to build a more diversified bank and this is where performance will improve."
The bank also wants to capitalise on people wanting to switch banks and will be making people aware how easy that was to do, Mr Brock said.
“It seems to be a well-kept secret across the industry,” he said.
“We will continue to make sure people know how easy it is to switch.”
Despite the satisfying result, he cautions the economy is “not yet out of the woods” and provisioning for bad debts is still a concern.
Total provisions for bad debts rose $4 million during the year.
Kiwibank celebrated its 10th year in business this year and bought Gareth Morgan Investments and its $650 million KiwiSaver scheme.
Mr Brock confirmed Kiwibank had asked its shareholder, the government, for a cash injection to help meet the Reserve Banks new capital requirements for banks.
Although he wouldn’t say how much the bank needs to meet that in the years ahead, a ballpark figure of $200 million was about right.
Retained earnings would be one component to meet the requirements, but Mr Brock acknowledged there wouldn’t be enough to meet all of it.