Kiwibank announces $202 million profit, the best in bank’s history

Thursday, 22 August 2024

Kiwibank has announced its highest profit ever.

The government-owned bank has reported a net profit after tax of $202 million for the 12 months to 30 June, up 15% on its previous financial year.

Chief executive Steve Jurkovich said Kiwibank had outperformed the wider banking market, while continuing to invest in its transformation to enable future growth.

“For the fifth consecutive year, Kiwibank has improved its profitability and grown faster than our competition, as we continue to build a stronger asset for New Zealand with all our earnings staying right here,” he said.

The profit announcement comes in the same week that the Government said it would beef up Kiwibank to increase competition in the banking industry.

Finance Minister Nicola Willis said banking competition currently resembled a “cosy pillow fight” with profit margins coming first and “everyday Kiwis coming second“. She said she wanted Kiwibank to be a “disruptor”.

Willis said the plan was to raise additional capital for the bank, which could come from KiwiSaver funds, New Zealand investment funds “and investment from everyday New Zealanders”.

Treasury would engage with Kiwibank’s holding company, Kiwi Group Capital, on the options for raising the new capital, which could be available to the bank from 2026, after the bank had upgraded its IT systems, she said.

Willis’ announcement followed the release of the Commerce Commission’s final report into the banking sector on Tuesday.

Jurkovich said: “We would welcome more access to capital over time to deliver on our purpose.”

“Kiwibank is currently focused on a multi-year transformation that will deliver more scalable systems to enable it to further accelerate its current growth. Any future capital investment would need to take timing of the transformation into account in order to maximise value.”

“Ultimately, any decision around capital, and the sources of that capital, sits with our shareholder, Kiwi Capital Group, and the Crown as the 100% shareholder of Kiwi Capital Group.”

Kiwibank recorded positive gains across nearly all key financial metrics, Jurkovich said.

The bank achieved net lending growth of $2.8 billion, growing its lending book by 9.3% to $32.4b.

Home lending grew 2.7 times faster than the market, Jurkovich said, and in business banking, Kiwibank outgrew its bigger rivals.

“The dollar growth was not massive at $200m but, in a market that went backwards, actually growing at all was a really good effort,” he said.

The big Australian banks seemed to lack appetite for small and medium business banking, he said.

Deposits increased by $2.4b, growing Kiwibank’s deposit book by 9.4% to $28.2b.

Mortgage borrowers have had a tough time with high home loan rates, but Jurkovich was optimistic after the Reserve Bank’s decision to cut the OCR last week.

The cut had been “the right thing to do”, and Kiwibank expected more cuts to come.

“The magnitude of these rate cuts will be positive for Kiwi households and businesses looking to borrow and create momentum for the New Zealand economy,” he said.

“As inflation and interest rates come down, we expect to see a rise in confidence and a much more positive outlook heading into 2025 and beyond.”

Mortgage rate cuts would pass through faster than in previous cycles because many borrowers had fixed their home loans for short periods, he said.

“Will there be people who say to themselves, for instance, ‘I was paying $1000 a fortnight. At a lower rate shall I keep paying $1000 and pay down the mortgage faster?’ or will people cut their repayments to give them a bit more cash. It will be fascinating to see.”

But he said: “Probably people feel they have been slogging away for a while, and wouldn’t mind a little bit of extra money to lighten things up a bit.”

Parliament is soon to open a select committee inquiry into banking, and Jurkovich intended to appear before it to make a few points.

One of the most important topics it can look at is whether Reserve Bank capital requirements to banks unfairly favour the big banks, Jurkovich said.

It’s a touchy topic for the Reserve Bank, which pushed back strongly when the Commerce Commission raised the issue earlier this year.

“What’s very difficult to reconcile, is why am I holding so much more capital compared to one of the four Australian banks for the same risk? I’m really hoping that question will come out at the select committee,” Jurkovich said.

“No-one can explain to me why I should hold 40% more capital, if I lend money to you, than if you borrow off ANZ. That doesn’t make any sense to me,” he said.

“It’s like being a club rugby team, and giving the All Blacks a 20-point start. It’s nonsense,” he said.