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Kiwibank profit bounces back after ring-fencing IT project

Friday 24th August 2018

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Kiwi Group Holdings, the parent of state-owned Kiwibank, more than doubled annual profit as it bounced back from a problematic IT project that was beset by write-downs and triggered a spat between the lender's shareholders. 

Net profit rose to $115 million in the year ended June 30 from $53 million. The year-earlier result included a $90 million write-down on the CoreMod IT project which has now been dropped. Stripping out those costs and some one-off insurance payments from the Kaikoura quake, underlying earnings increased 3 percent to $133 million. 

Chief executive Steve Jurkovich, who took over the reins four weeks ago, said a critical issue for the bank has been to "close the chapter on some stuff that's had quite a lot of energy and focus." That can now be redirected to lending opportunities from the Kiwibuild programme and to first home buyers generally. 

That IT project has caused unrest between Kiwi Group's shareholders - New Zealand Post, the New Zealand Superannuation Fund, and Accident Compensation Corp - with the latter two lodging a warranty claim against the state-owned mail service, which used to own Kiwibank outright. NZ Post today said the claim is without merit, but it's in talks with its partners in an effort to resolve the issue. 

Jurkovich said that tension has had "zero impact" during his first four weeks with the firm. He's been given an explicit assurance that it won't hinder Kiwibank's ability to secure a capital injection, something he said isn't on the cards given the bank's strong funding. 

"What I got from the shareholders was really strong support - they're 100 percent behind Kiwibank," he told BusinessDesk. "Any discussion is not impacting on us in the slightest." 

The Wellington-based bank is entering a new phase, where the shareholders aren't seeking dividends. Instead, Jurkovich said they want Kiwibank to invest with a long-term view and to look after its customers. 

Kiwibank's loan book grew to $18.3 billion as at June 30 from $17.82 billion a year earlier; customer deposits climbed to $16.17 billion from $15.98 billion. Net interest income rose 12 percent to $419 million and its net interest margin widened to 2.06 percent from 1.92 percent, in line with those of the big four Australian-owned banks. 

Jurkovich said the bank is well-funded by deposits, which "sets us up nicely" to chase credit growth. He sees the government's Kiwibuild programme and first-home buyers generally as an opportunity, with a shortage of housing ensuring there's market demand at a time when prices are cooling in parts of the country.

Loan-to-value ratios remain high and fees for borrowers with small deposits support the economic case for that lending, he said. At the same time, deeper home-ownership should be core to the culture of a Crown-owned lender and may help the firm differentiate itself in the market. 

"We want to be the first port of call in that space," he said. 


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