Kiwibank's large deposit base has cramped its margins as competition for funds remains fierce, ratings agency Moody's says.Moody's Investor Services made the comments in assigning the state-owned bank a first-time rating of Aa3 -- signifying it's on the l
Kiwibank’s large deposit base has cramped its margins as competition for funds remains fierce, ratings agency Moody’s says.
Moody’s Investor Services made the comments in assigning the state-owned bank a first-time rating of Aa3 -- signifying it’s on the low end of having a high quality, low credit risk and a “very strong” ability to repay debt obligations.
The rating reflected the strong credit profile of Kiwibank’s parent New Zealand Post, which provides a guarantee to the bank, Moody’s said.
However, the bank faced profitability challenges as margins shrank and was dependent on NZ Post’s capital support to accommodate its rapid growth, the agency said.
Moody’s analyst Daniel Yu said Kiwibank’s price-led strategy had successfully attracted customers at the expense of lower margins.
Net interest margin declined sharply during the full-year to June, in which the bank’s profits fell 13% to $45.8 million
“We expect margin compression to continue as competition is likely to remain high,” said Mr Yu.
Kiwibank had identified a number of initiatives to address the ongoing pressure on profit: targeting growth in business banking, accessing competitively priced funding through the wholesale market and introducing new deposit products to attract funds.
Kiwibank reported assets of $12.2 million at June 30.
Mr Yu said extensive reliance on New Zealand Post for capital support was expected to continue, “at least until the bank improves its profitability to accommodate its strong growth”.
The stable outlook reflected Moody’s expectation that government support for New Zealand Post was likely to remain high, underpinning the guarantee it provided Kiwibank.
“Any change in government policy that impacts support could provide positive or negative pressure on the rating,” said Mr Yu.
