Kiwibank interim profit flat at $71 mln as expenses rise faster than income with core banking upgrade continuing

Kiwibank has posted flat half year profit as expenses grew faster than income.

Kiwibank’s net profit after tax for the six months to December 31, 2015 was $71 million, unchanged from the equivalent period of the previous year. 

Net interest income rose $10 million, or 6%, to $189 million. However, total operating revenue was up just $5 million, or 2%, to $245 million as net fee and other income fell. The bank’s operating expenses climbed $13 million, or 10%, to $146 million. Kiwibank’s impairment allowance dropped $3 million to $6 million.

Expenses rose as Kiwibank pushes on with a multi-year upgrade of its core banking system, which CEO Paul Brock says will cost “more than” $100 million. The bank’s currently working through phase 2 of the project, which includes migrating the majority of savings and transaction accounts to the new SAP system. Brock says phase 3 is still to follow, which will include moving across lending systems and customer records. He says the cost of the project to date is “broadly in line” with expectations, and the project should be “close to finishing” by the end of 2017.

Across its half-year Kiwibank grew lending – home loans, business banking and credit cards – by 5% to $16.35 billion. Customer deposits were also up 5% to $14.43 billion, with the bank using deposits to fund about 80% of its home loans.

Meanwhile Brock said Kiwi Group Holdings, the NZ Post subsidiary that includes Kiwibank, Kiwi Insurance and Kiwi Wealth, is on track to top last year’s annual profit of $127 million after tax. He acknowledged, however, that the second half-year was likely to be tougher than the first-half, although the economy had been “surprisingly resilient.”

Brock said Kiwibank still has no plans to enter the rural banking market.

Net interest margin falls

The bank’s net interest margin fell six basis points to 2.10% in the December half from 2.16% in the equivalent half of the previous year. It was also down two basis points from Kiwibank’s June 2015 year figure of 2.12%. The bank’s cost-to-income ratio rose to 59.6% from 55.7%.

Kiwibank paid $24 million in dividends to NZ Post during its half-year, equivalent to 34% of net profit after tax.

Kiwibank profitability measures

Here’s Kiwibank’s press release

Kiwi Group Holdings and Kiwibank six-month financial results (July 2015 – December 2015)

Kiwi Group Holdings, which includes Kiwibank, Kiwi Insurance and Kiwi Wealth, has declared a profit of $73 million after tax for the six months ended December 31, 2015. This compares with a profit after tax of $72 million for the same period in 2014. Kiwi Group Holdings is owned by New Zealand Post Group. Kiwi Group Holdings and Kiwibank Chief Executive Paul Brock described the results as “a healthy consolidation after spectacular growth for the same period reported last year of more than 35%”. 

The Kiwibank contribution to the result was $71 million, matching the $71 million for the same period last year. Focusing on the bank result, Mr Brock said that in the six months from July 1, 2015 to December 31, 2015:

 Total lending (home loans, business banking and credit cards) increased 4.8% from $15.60 billion to $16.35 billion

 Customer deposits increased 5.0% from $13.74 billion to $14.43 billion Mr Brock said the Group was on track to match and possibly exceed last year’s full year result of $127 million after tax which was a pleasing result in a period of significant spend on strategic initiatives. 

Mr Brock described the trading period of the last six months of last year as “volatile” with the Official Cash Rate continuing to fall, interest rate margins tightening and vigorous competition for loans and deposits. “Customer support has enabled Kiwibank to continue to fund lending for home loans from deposits by more than 80%. 

“We have also maintained customer growth with our total customer base at the end of the year at 920,000 (880,000 at the same time in 2014). The critical measure of Main Bank Customers increased from 418,000 in December 2014 to 435,000 at the end of 2015.

“This is very encouraging support of a New Zealand-owned bank in an internationally competitive banking environment.”

Mr Brock said there were a number of other significant events during the reporting period including:

• Continued investment and progress in upgrading the bank’s core technology systems

• On-going investment in digital business strategies including digital on-boarding

• Increasing growth and revenue diversification from Kiwi Wealth and Kiwi Insurance businesses with funds under management up 6.7% to $3.8bn

• Reaching agreement on two stand-alone Kiwibank branches in central Christchurch and Hamilton (all branches previously operated through Post Corporate or franchise shops)

• Standard and Poor’s Rating Services affirming Kiwibank’s credit rating as A+ stable (previously negative)

• Dividend paid to NZ Post of $24m, bringing total dividends paid in 2015 to $46m. 

And here’s Kiwibank’s media briefing material.