NEW ZEALAND: by Peter WestmoreNews Weekly
NZ Kiwibank now has 600,000 customers
, April 26, 2008
As Australian banks reel from their exposure to the US sub-prime lending crisis and failed loans to local stock-exchange speculators, it is instructive to take a look at what is happening across the Tasman. Peter Westmore reports.After six years of steady growth, Kiwibank has just announced a massive 31 per cent rise in profits for the last half of 2007, rising from $NZ17.2 million to $NZ22.7 million.
This puts Kiwibank in a strong position to exceed a profit result of $NZ25.5 million for the 12 months ended June 30, 2007. This itself was a 61 per cent increase ($NZ9.7 million) over the corresponding period in 2006.
Kiwibank was set up by the New Zealand Government in 2002 as a response to the takeover of the main New Zealand banks by foreign banks, including Australia's Commonwealth, ANZ, National Australia and Westpac banks.
Kiwibank began with $A63 million in start-up capital from the NZ Government, and is owned by NZ Post. It was denounced at the time by the opposition National Party and the free-market ACT party, whose spokesman dismissed it as a "dog".Political independence
To ensure that its operation was not politicised, the Labour Government appointed the former leader of the NZ National Party, Jim Bolger, as chairman of the board, and Sam Knowles, a New Zealand-born senior executive at the National Australia Bank and later with NZ Post, as CEO.
Unlike other NZ banks which closed over 600 branches between 1994 and 2001, Kiwibank was established to provide a large network of local branches, set up in local post offices and retail stores. It also provides free internet banking.
Within 12 months of opening its doors — and two years ahead of schedule — Kiwibank had 280 branches and 100,000 customers. It now has about 600,000 customers, compared with about 3 million for its competitors.
In deference to the existing banks, Kiwibank was originally confined to personal banking. It originally provided face-to-face banking, home loans, credit cards and deposit accounts, but has subsequently expanded into business banking, superannuation and other areas.
Even before Kiwibank began the roll-out of branches in April 2002, its competitors had responded by lowering bank charges on personal accounts, to the benefit of the people of New Zealand.
Since then, Kiwibank has provided low-cost home loans and high-interest deposits, which have been matched by its competitors.
In releasing Kiwibank's latest results, Mr Knowles said its core domestic business has insulated it from the global credit crisis, and a shaky finance sector at home is driving business its way. Businesses that had once looked to finance companies for capital were now approaching Kiwibank. "As a result we've had some of our best periods ever as far as year-on-year growth," he said.
The trend had gained momentum in the first months of this year, and he expected it to continue.
Because Kiwibank raises its money locally, it is not directly affected by the international credit crunch. Other NZ banks are dependent on international wholesale markets for much of their working capital.
Kiwibank needs none because of its strong local depositor base. However, the local subsidiaries of the big four Australian banks range from around 25 to 40 per cent of overseas funding.
All up, NZ financial institutions have some $NZ100 billion of outstanding foreign funding, of which half matures in less than a year. So they are very dependent on regular access to foreign markets to keep renewing the money.
"The potential for a deterioration in financial stability to further intensify risk aversion seems significant," said NZ Reserve Bank governor, Allan Bollard recently.
"For countries like New Zealand, with substantial borrowing from abroad, this could clearly have an impact on our cost of funds and/or our access to funds in some global financial markets."
Kiwibank's business model is based on remaining close to its customers.
Apart from the Reserve Bank warning, there is rising concern in New Zealand that the international credit crisis could adversely affect the country. The Bank of New Zealand recently suggested that house prices were 30 per cent overvalued, and risked a catastrophic fall.
Susan Schroeder, senior lecturer in business and economics at Auckland University of Technology, told the New Zealand Herald
recently: "Given the close relationship that New Zealand banks have with the Australian banking system, a key risk to New Zealand's banks is for the Australian economy to reach the peak, or upper turning-point, in its business cycle."
She said that, although the Australian economy was still healthy, the word recession is being nervously mentioned with increasing frequency.
The four big Australian banks' subsidiaries — ANZ National, ASB Bank, BNZ and Westpac — dominate the New Zealand market, holding well over 80 per cent of the industry's assets. The current global economic turmoil could further benefit Kiwibank, as well as keep banking profits in New Zealand.