KiwiBank profits up, but more capital needed

KiwiBank has posted a $37.9 million after-tax profit for the six months to December 31, up nearly threehold from the same period a year earlier.

Chief executive Paul Brock said at a conference this morning the figures represented “a good solid performance”.

Total lending increased 10% to $12.1 billion, and while retail deposits rose 13% to $8.6 billion, wholesale deposits declined 11% to $3.1 billion.

Mr Brock said the result came despite an economic mood that contributed to a widespread shedding of debt. “On the lending side we’re seeing a lot more deleveraging going on in the market,” he said.

Net interest margins widened more than 20 basis points year-on-year, increasing to 1.69% from 1.42%. Mr Brock said this spread was lower than competitors, but the difference was mainly due to KiwiBank not being exposed to rural and large business lending.

Mr Brock flagged pressure on margins from events internationally, but was optimistic the Eurozone crisis would not ramp up bank funding costs. “We’re not out of the woods yet, but it’s certainly heading in the right direction," he said.

Impairment allowances dropped to $18 million, down from a peak in the second half of 2010 of $31 million. Mr Brock said the reduction in bad debts was a sign “the fallout from the last few years” was reducing in intensity.

Increased mortgage lending was more due to customers switching banks than a pickup in the property market, Mr Brock said. “What we’re largely seeing is Auckland picking up, but it’s still start and stop,” he said. “The rest of the country is a little more sluggish.”

KiwiBanks’ capital ratio of 12.1% is well above the Reserve Bank’s 8% minimum, but Mr Brock signalled a capital injection would be required to meet new Basil III standards.

“The capital requirement for banks overall has gone up signficant. The bulk of the capital required will come through retained earnings, but there will be a need for additional capital,” he said.

Mr Brock would not be drawn on how large such an injection KiwiBank would need from state-owned parent New Zealand Post.