Kiwibank CEO Steve Jurkovich says record first-half profit won't be repeated in second-half of bank's financial year as MP raises idea of bank levy

CEO Steve Jurkovich says Kiwibank's "very strong" financial results for the first-half of its financial year won't be repeated in the second-half, and that strong profits effectively go back to customers because the bank is state owned.

Kiwibank reported record interim net profit after tax of $98 million on Thursday morning, covering the six months to December 31, 2022.

The bank's net interest margin, the difference between income generated from credit products like loans, and payments made to deposit savers and others the bank borrows from, surged to 2.42% from 2.04% year-on-year. This comes after ASB last week reported a 33 basis points rise in its interim net interest margin to 2.52%.

Speaking on Wednesday Reserve Bank Governor Adrian Orr said banks had "been very quick to increase the mortgage lending rates, but deposit rates have lagged behind, and bank margins are holding up." 

"Higher deposit rates are a critical part to encourage savings which takes inflation pressure out of the economy," Orr added.

Meanwhile, Green Party MP Julie-Anne Genter raised the possibility of a bank levy to help fund the recovery from recent extreme weather in the North Island. (See below).

RBNZ notes that bank margins on deposit rates are increasing. Rates are going up to borrow, but not as fast for savers. Won’t be the only factor - but if record bank profits continue to be posted there’s a clear case for a levy to help pay for recovery.

— Julie Anne Genter (@JulieAnneGenter) February 22, 2023

'We do everything we can to hold on to those deposits'

In terms of Orr's comments Jurkovich told interest.co.nz he understands the point the Governor is trying to make.

"But I think if you look back over the time period that he was referring to, the deposit rates have rallied pretty fast just like the lending rates. So we had a period of time there where funding conditions were really strong and favourable, you obviously had the FLP [Reserve Bank's Funding for Lending Programme] in play. We're 72% or 73% deposit funded so it looked like the rates were attracting customers," Jurkovich said.

"I think maybe the rates are nearer the top than we thought they were going to be a little while ago, but I still  think all of us are making sure we do everything we can to hold on to those deposits."

In terms of the bank's December half-year results, Jurkovich said it was a very strong six months.

"I don't anticipate that the next six months will look the same as that. And I guess this is also times where we are going to have to support and do more than we would typically through the cycles to support more customers. [Such as through] interest free overdrafts, you've seen the banks offering reduced rates for lending and those sorts of things. All of those are going to have an impact on performance, and that's the sort of ups and downs of the banking cycle," Jurkovich said.

"For us, customers can rest assured that any strong return is their money and goes back to them. I guess that is one of the differences between Kiwibank and other banks."

Kiwibank is fully government, or Crown, owned.

Cyclone hits Kiwibank staff

Meanwhile, the devastating impact of Cyclone Gabrielle in the Hawke's Bay hit very close to home for Kiwibank.

"We've got quite a big operation centre in Hastings so [Kiwibank] people are living in that local area. We've got a couple of hundred team members who hub out of the Hastings operations centre. We're got two of our senior leadership group down there today [Thursday] working out how best to put forward our relief support. We've committed a bit over $320,000 to helping people get on their feet in this little first period together with relief packages and 0% overdrafts and temporary fill-ins for people waiting for insurance and deferred payments. So we've got the full suite of things helping people," he said.

"But probably the big difference for us is having that big operation in Hastings has really brought home how people are impacted. Last Friday at one stage we had 48 people we hadn't heard from on our team, which is hugely distressing and brings home how hard it was for all those families that couldn't get hold of their friends, family, [etc]."

"I think it's a long grind to get that area back on its feet," Jurkovich said.

He added that all 48 Kiwibank staff are okay. The Hastings operation centre survived, and has been used as a respite centre for showers, the charging of phones, eating etc.

Kiwibank opened what it refers to as an enterprise operations centre in Hastings in 2014 in order to strengthen its ability to offer seamless continuity of critical services if something caused it disruption in Auckland or Wellington.

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