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Kiwibank reliance on deposits hurts margins, says Moody's

Friday 12th November 2010

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Kiwibank large deposit base has hurt margins as it vies for funds in an intensely competitive market, says Moody's.

"Whilst it creates a reliable source of funding, the bank's large deposit base has hurt margins, which continue to be pressured by intense competition," said Moody's analyst Daniel Yu. The lender's "price-led strategy" has been successful in attracting customers "but at the expense of lower margins."

Moody's today announced that it has assigned Aa3/Prime-1 ratings to Kiwibank, a unit of state-owned New Zealand Post. Kiwibank had some $12.2 billion of assets as at June 30. Profit fell 13% to $45.8 million in the year to June, as regulatory changes forced lenders to reduce short-term overseas funding, increasing demand for depositors.

"We expect margin compression to continue as competition is likely to remain high," Yu said.

To alleviate the pressure on margins and profit, Kiwibank has sought a larger share of business banking, tapped wholesale markets and launched new deposit products.

Kiwibank isn't government guaranteed though such support is provided by parent NZ Post.

"We believe that there is a high potential for support, as evidenced by an uncalled capital facility provided by the government, for the express purpose of supporting Kiwibank's financial position," Yu said.

Kiwibank retained profits have been inadequate to support its rapid rate of growth and the lender has relied extensively on the postal service for capital support. That trend is expected to continue, Yu said.

The ratings outlook is stable, Moody's said. The bank was also assigned a bank financial strength rating of D+.

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