Kiwibank 'on front foot' as shareholders push it to compete for new lending

Friday, 24 August 2018

Kiwibank has endured IT troubles, a dispute with the Reserve Bank over capital and now its shareholders issueing legal threats but the board has told its new chief executive to focus on growth in the medium term.

Kiwibank's new chief executive insists its shareholders are united on its strategy, urging the bank to grow rather than pay dividends.

The Government-owned bank's shareholders are in dispute over a troubled IT project, with fund managers ACC and NZ Super, which purchased 47 per cent between them, accusing majority owner NZ Post of failing to disclose risks involved in a major technology upgrade ahead of the 2016 partial sale.

But chief executive Steve Jurkovich who joined the bank this year said directors were united and had urged the company to focus on growth, as he presented the bank's annual results.

'We had a board meeting this week and they were very clear about what they want us to do,' Jurkovich said.

* Kiwibank rethinks IT project after $90m write-off

Steve Jurkovich joined Kiwibank as chief executive from ASB.

* NZ Post to sell 45 per cent of Kiwibank for $495m cash injection

* NZ Post blames paperwork for delaying partial sale of Kiwibank

* Kiwibank value plunges, ACC and NZ Super get NZ Post to sweeten deal with $90m cash**

'They made it clear they weren't expecting a dividend from us they want us to invest and grow the business over the medium term. What I felt and saw and heard was a unified support for the business.'

Any dispute between the shareholders would not affect the bank, Jurkovich said, a point also made by NZ Super and NZ Post.

Kiwibank reported a doubling in net profit after tax to $122 million for the year to June 30, up from $58m in 2017. The 2017 results were heavily affected by major write-down of the value of work it had done on CoreMod, a major IT upgrade.

But Kiwibank's underlying profit, at $126m, has been roughly the same over the last four years, a period where the major Australian-owned banks have seen profits surge to record levels.

Jurkovich said Kiwibank had been facing some considerable challenges, including the problems in the IT upgrade as well as a spat wirth the Reserve Bank over whether a major capital instrument could continue to be treated as capital.

Kiwibank had 'navigated some pretty tricky times over a couple of years,' Jurkovich said.

'That's meant that we've had to make adjustments to the way we operate the business. Whether it be around the disruption of eligibility of a capital instrument, navigating the technology situation…the business has had to focus on a lot of different things.'

The issues ultimately had an impact on what front line staff and impacted lending.

'We've kind of closed the door on that in this financial year and the next. We're very well funded, we've got a good capital base, we want to help more people into their first homes, and homes in general, so we'll look to perform in the general market, we've got a really great opportunity in business market, particularly in the small and medium end'.

Jurkovich said Kiwiwealth, Kiwibank's fund management and Kiwisaver business was the 'star performer' of the group, while there was plenty of opportunity for the insurance business.

'The expectation from the owners and from the public is we should play a healthy part in having a competitive banking market and we're certainly keen to play our part in that so we'll be on the front foot.'

The new chief executive's signal of a more aggressive strategy comes at a time when the housing market has been cooling and business confidence has softened.

Jurkovich remained positive about the outlook for the economy however and housing.

'I don't see particularly dark clouds on the horizon, I see an underlying demand for affordable housing, which is one of the key issues in New Zealand.'

David Walsh, chief executive of NZ Post said dispute a dispute with Kiwibank's new shareholders, the board was united in the strategy for the banking business to grow.

ACC and NZ Super paid $494 million for a major stake in Kiwibank, buying 22 per cent and 25 per cent respectively. Now they have filed a notice of claim alleging information about the risks to the IT project was not disclosed during due diligence.

Walsh said the parties were taking a professional approach to try to resolve the situation, but NZ Post did not believe there was merit in the other shareholders' claims.

'We're listening to what their concerns and questions are, we're going through a process to understand it' but 'our initial view is we don't believe there is a huge amount of substance.'

NZ Post had made no provision in its financial statements in respect of the claim.