Kiwibank: 'We've thrown the kitchen sink at the housing market'

Thursday, 24 February 2022

Kiwibank has reported a net profit after tax of $64 million​ for the six months to 31 December 2021, up 16​ per cent on the same period last year.

Chief executive Steve Jurkovich​ said the bank grew its share of the home loan and business banking markets.

“Total lending growth of $1.9 billion for the half, up 20 per cent on the prior period, was driven by the strong housing market and solid demand, with above market growth from our continued focus on the expansion of adviser channels,” he said.

“Business banking growth was flat on the prior half, but well above the rest of the market.”

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The bank was two years through a five-year transformation programme.

Jurkovich said after a year of strong growth, the bank was forecasting a period of consolidation in the housing market and acknowledged the possibility of modest price falls.

“A number of factors are at play including expected increases to the Official Cash Rate, tighter lending restrictions, including LVRs, DTIs and CCCFA, and an increased supply of new homes,” he said.

“It does look like it’s peaked, but we have thrown the kitchen sink at it,” Jurkovich said.

Even if house prices fell, homeowners would not be underwater, having experienced such increases in prices, he said.

As prices rose, Kiwibank saw the share of its lending going to first-home buyers fall from 28 per cent of new loans to 24.

Recent changes to responsible lending laws and regulations had slowed lending, because they had made it harder for banks to lend, and the media attention had led to some people not applying for loans they might have applied for before the changes were made.

“That takes confidence out of people,” Jurkovich said.

“Some people just looked at it and thought, I just don’t want to go through the hoops.

“I think changes are needed. It doesn’t make any sense that the same amount of work goes into a $1000 credit card as goes into a $2m home loan,” he said.

After meeting with the Minister of Commerce and Consumer Affairs David Clark to express his concerns, Jurkovich shared the optimism of ASB chief executive Vittoria Shortt, and ANZ chief executive Antonia Watson that changes would be made.

“I think the minister is listening, and I think there will be changes, and I think there will be an initial set of changes to make things a bit smoother, and they will have another look in six or 12 months to see what else we could do,” Jurkovich said.

Kiwibank, which now has over one million customers, turned 20 this year, but its future ownership is unclear.

The Government is considering future ownership of Kiwibank’s parent company Kiwi Group Holdings, which the Companies Register shows owns 74.67 per cent of Kiwibank.

Kiwi Group Holdings is co-owned by the Sovereign in Right Of New Zealand Acting By And Through the Minister of Finance (20.57 per cent), NZ Post (42.1 per cent), the New Zealand Superannuation Find (15.62 per cent), and ACC (17.48 per cent).

ACC and the NZ Super Fund bought their stakes in 2016 in a deal worth $494m.

Among the suggestions for the bank's future ownership came from former chief executive Sam Knowles, who suggested a partial listing on the NZX sharemarket so KiwiSaver funds could buy its shares, and the bank could raise capital.

Jurkovich said the bank’s growth plan was self-funding, but rising Reserve Bank capital requirements were coming all banks’ way as the Reserve Bank moved to strengthen the banking system.

“All banks are facing rising capital requirements. Four of our competitors generate such big earnings, if they don’t pay dividends, their capital raises really quickly. Their profits are 10 times what ours is,” he said.

Kiwibank could cope with the rising capital requirement without a capital injection.

“The New Zealand exchange would welcome more companies listing marking for more vibrant capital markets,” Jurkovich said.

But, he said: “Ultimately, that’s a question for the owners.”