The head of Kiwibank says it will need to use overseas funding to grow, driven in part by new Reserve Bank rules regarding liquidity.Kiwibank today declared a 9 percent drop in half year profit to $23.5 million, which was "a strong performance in a v
The head of Kiwibank says it will need to use overseas funding to grow, driven in part by new Reserve Bank rules regarding liquidity.
Kiwibank today declared a 9 percent drop in half year profit to $23.5 million, which was "a strong performance in a very difficult financial environment", said chief executive Sam Knowles.
The bank successfully raised $309m through its first overseas bond issue, in Australia, as Mr Knowles said it looked to widen its funding base for domestic residential lending it would be able to use that structure in the future.
However, Kiwibank, set up in 2002 by the Government to be a locally-owned alternative to the big four Australian banks, was subject to new Reserve Bank rules that from April 1 banks have to have a 65 percent liquidity ratio.
The major component would be retail deposits, Mr Knowles said.
That made it more attractive Kiwibank to go offshore for funding because the cost of sourcing local funds would be a lot higher as Australian banks would also now be competing for them.
"This is really a consequence of a Reserve Bank decision and it is costing the sector a lot of extra money and probably costing New Zealand a lot of money in terms of the extra cost of raising money globally.
"We have a disadvantage now, as any New Zealand-owned organisation has, that access to overseas money in cheaper than local money because of the way the Reserve Bank has set the rules."
Mr Knowles believed it was a short-term issue.
"My presumption is, that over time, other banks will strengthen their offshore term franchises and there will be some adjustment in the market."
It meant depositors were doing well and lending rates would increase faster than they would otherwise.
There was a cost to the economy in paying for banking security, he said.
"I think its a trade-off in the end, that the Government and the Reserve Bank has to make. I am not sure it's a smart thing to do for a nation that's a big borrower."
Meanwhile, Kiwibank said in the half year total lending increased 15 percent from $8.5 billion to $9.8b and retail deposits increased 3 percent from $6.7b to $6.9b.
Assets grew 27.4 percent in the year to $12b while total liabilities grew 26.9 percent to $11.6b.
The ratio of retail deposits to retail lending was 71 percent, down from 90 percent at the same time last year.
Total capital increased by $99.5m to $550.8m, 22 percent up from last year.
Impaired assets, at $31.6m, or 0.26 percent, was low and stable while most other banks' ratios were rising, which reflected a low risk approach to lending, Mr Knowles said.
The bank now had more than 700,000 customers and was gaining a constant 2000 new customers a week.
It now had between 7 and 8 percent of transactional bank accounts in the country.
"We are going along at a steady clip of taking customers away from other banks, as we have been doing for years."
