Kiwibank's growth momentum slows

Kiwibank is still growing its mortgage book at a much faster pace than its market share but its momentum continues to wane and its profitability is under pressure as bad loans mount.  

Tuesday, November 30th 2010, 7:14AM 2 Comments

by Jenny Ruth

Kiwibank's latest general disclosure statement (GDS) shows its mortgage book grew by $293.6 million to $9.95 billion in the three months ended September 30, its smallest quarterly increase since the June quarter of 2008 when its mortgage book grew $250 million.

That compares with its $300.7 million growth in the June quarter and $0.97 billion in the December 2008 quarter, its biggest ever quarterly increase.

Using Reserve Bank figures as a proxy for the market (actual figures won't be available until all the home lending banks have lodged their September quarter GDSs and Kiwibank is only the third to have done so), Kiwibank accounted for 36.5% of all new mortgage lending by registered banks in the September quarter.

Kiwibank's share of total mortgage lending by registered banks rose to 5.98% at September 30 from 5.87% three months earlier.

Kiwibank's continued growth is obviously coming at a cost to profit since its September quarter net profit fell 37.5% to $8.7 million from $13.9 million in the same quarter a year earlier, dragged down by its charges against profit for bad loans jumping 74% to $9.5 million compared with $5.5 million in the same three months a year earlier.

By contrast, ASB Bank, which has also lodged its September quarter GDS, added $1 million in recoveries from bad loans to profit for the quarter compared with its $77 million charges against profit in the September quarter last year.

Kiwibank's gross balance of impaired residential mortgage loans jumped to $27.8 million at September 30 from just $3.6 million a year earlier.

Despite its falling bottom line, Kiwibank's net interest income climbed 30.1% to $43.4 million in the three months compared with $33.4 million in the year-earlier period.

Of its total mortgage book, 20.3% had loan-to-valuation ratios (LVRs) above 80% at September 30, unchanged from three months earlier, although those with LVRs above 90% eased to 6.3% from 6.8% three months earlier.

Of the loans with LVRs above 90%, $321 million are government-backed Welcome Home Loans and the rest of its loans with LVRs above 80% are covered by mortgage insurance.


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Comments from our readers

On 30 November 2010 at 12:31 pm John said:
As the Reserve Bank's core funding ratio requirements for banks increase next year Kiwibank's growth will continue to be tied to its access to capital in relation to what it can lend out to borrowers. Based on the management of its capital reserves to date there has been an assumption that the Government would willingly keep injecting more money into Kiwibank each year with no thought to its profitability long term. Just as the other banks would never expect to receive a shot in the arm from the Government Kiwibank now needs to learn to stand on its own two feet then if it hopes to expand going forward.
On 30 November 2010 at 3:09 pm John said:
Interesting also to hear Labour's comments that if they make it back into Government they would actually look to expand Kiwibank's services. This means presumably another capital "injection" at the taxpayers expense. Amazing how one political party's ideology is so blind to what it takes to run a successful and "profitable" business.
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