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Kiwibank's profit plunges as bad loan charges soar

Kiwibank's March quarter net profit plunged as charges for bad loans soared. Kiwibank says the blowout in bad loans is almost entirely due to fallout from the Christchurch earthquakes.

Monday, May 30th 2011, 4:55PM 2 Comments

by Jenny Ruth

However, its net interest income jumped 52% and its mortgage book appears to have continued to grow much faster than its market share.

Kiwibank's latest disclosure statement shows net profit for the three months ended March plummeted to just $0.8 million from $12.2 million in the same quarter of 2010. That took net profit for the nine months ended March to $14.7 million, down 59%.

Charges against profit jumped to $25.8 million from just $3.2 million in the March quarter last year, taking charges for the nine months ended March to $56.8 million from $12.9 million in the year-earlier nine months.

A disproportionate share of the bad loans are to businesses in Christchurch - Kiwibank started to lend to small to medium sized businesses about six years ago.

The bank says total impaired assets rose from $64 million to $90 million in the three months and of this, $14 million relates to businesses in Christchurch impacted by the earthquake. The remainder relates to a variety of corporate and residentially-secured loans, Kiwibank says.

David Tripe, head of banking studies at Massey University, says when most other banks were showing mounting bad loans over the past couple of years, Kiwibank was showing very low levels.

"Undoubtedly, some of it will be due to the quake but part of it is Kiwibank's taken much longer for the problems to hit home," Tripe says.

"That may be a consequence of less experience at identifying and managing problem loans." The latest quarter's bad loan charges equate to about 0.75% on an annualised basis of Kiwibank's total assets of $13.85 billion at March 31.

Westpac and ANZ Bank were reporting similar levels of bad loan charges a year or two ago, he says.

Kiwibank's net interest income rose to $51.3 million in the three months from $33.7 million in the year-earlier quarter. The bank attributes this to borrowers switching to higher margin floating rate loans away from fixed-rate loans and to a flattening cost of funds as hedging on its fixed-rate loan book rolled off.

Having adopted new reporting rules from the latest quarter, Kiwibank no longer provides the figures has been using to measure banks' mortgage books since 2002 in its "off" quarters - its first and third quarters.

Its loan-to-valuation ratio (LVR) table shows its on-balance sheet mortgage exposures grew by $245 million to $10.33 billion in the three months ended March.

That's faster than the $194 million growth by the same measure shown in the December quarter. In the year ended March, Kiwibank's mortgage book grew $1.03 billion by this measure. Unlike most of the other banks, Kiwibank didn't provide information about its off-balance sheet mortgage exposure, loans approved but not drawn down.

« Moodys downgrades NZ banksTSB's mortgage book grows but profitability flat »

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Comments from our readers

On 31 May 2011 at 12:09 pm Jim said:
Seems like Kiwibank are taking a bath on SME type lending, yet their strategy is to grow agressively in the SME space. Doesn't make sense and pees me off as a taxpayer that my hard earned taxes will end up propping up Kiwibank.
On 31 May 2011 at 1:18 pm Fred Broker said:
Well well well. Any mortgage broker with any real understanding of the mortgage market (that limits things) will have seen this coming from the first. Kiwibank have been riding on the tax payers purse to get their dodgy business model up and running and rate shopping NZers have swarmed to the detriment of all tax payers. No wonder the PM has to keep finding new ways to generate revenue to clean up these greed fueled messes that most short sighted gorse pocketed self revolving Kiwi's can't help themselves in taking up. I'm glad I pulled out of the mortgage broking market - not for all the lame politically correct reasons that most brokers use but because it is just too hard dealing with peanut thinking narrow minded borrowers and greedy deceptive back stabbing banks. What a mess.
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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 ▼3.85 ▼3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 3.29 3.39 3.85
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac ▼3.39 3.45 ▼2.99 ▼3.35
SBS Bank 4.54 ▼3.05 3.19 ▼3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - ▼2.55 2.69 ▼2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 ▼2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 ▼3.29
TSB Bank 5.34 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.10 3.19 3.12

Last updated: 7 August 2020 5:51pm

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