Kiwibank mulls expansion in NZ's $30 billion-a-month FX market

BUSINESSDESK: State-owned Kiwibank is considering expanding into New Zealand’s $30 billion-a-month foreign exchange market, extending its rivalry with the nation’s big four Australian-owned banks.

The Wellington-based bank has released a request for information through the Government Electronic Tenders Service, or GETS website, to help identify a list of suitable service providers and investigate the market for FX pricing and risk management platforms.

The bank has a "business markets division" in Wellington with eight sales dealers and three traders and is looking to establish a satellite office in Auckland, it said in the document.

“With Kiwibank looking to increase and deepen its presence in New Zealand business markets, Kiwibank Financial Markets is rapidly becoming a key cornerstone of this strategy.

“Kiwibank Financial Markets is gearing up to become a full service provider of markets products and service in New Zealand.”

Since starting in 2002, the state-owned bank has managed to build its share of the major bank lending market to 4.2%, while capturing 6% of deposits, based on figures for the second half of 2011 in PwC’s Banking Perspectives report released in February.

It had total assets of $14.4 billion as at December 31, amounting to about 4% of the $362 billion total assets of the nation’s seven largest retail banks, according to the KPMG Financial Institutions Performance Survey for the December quarter.

"It is part of their trend to increase their sophistication as a bank,” said David Tripe, associate professor at Massey University’s School of Economics & Finance.

"Kiwibank started off in a relatively small way with a primary focus on customers and they are looking to move on from that.”

Spot trading in New Zealand’s foreign exchange market was about $35 billion in March, according to Reserve Bank figures released today.

Bruce Thompson, communications manager at Kiwibank, told BusinessDesk the lender hasn’t made a decision yet on moving into foreign exchange.

Kiwibank is “looking to build our knowledge base and better understand the global market around FX trading technology”, he said.

In February, Kiwibank posted a first-half profit of $37.9 million, almost triple the year-earlier result of $13.9m.

Separately in February, it had the outlook on its credit rating dragged down by the “ongoing structural decline” of parent New Zealand Post delivery business.

Standard & Poor’s affirmed Kiwibank’s AA-minus credit rating and placed it on negative outlook, giving it a one-in-three chance of a downgrade over the next two years.