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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14 Comments
I believe that JAG has a point, even though it will likely be for different reasons. Given that banks are implicitly guaranteed by taxpayers and the fact that their privilege of being able to create their product out of thin air (their debt obligations [assets] are lent into existence), then it is only fair that they should be on the hook for higher taxation compared to other businesses that do not share the same institutional privilege / benefits.
If the RBNZ really wants the commercial banks to jack up their deposits it has a very simple option open to it - merely raise the rates it offers on Kiwi Bonds (particularly the 6mo and 1 year offer). Given that the banks will soon have a govt guarantee on deposits (up to $100K), then these deposits will soon have the same 'safety' as Kiwi Bonds, so this is a way the RBNZ has to force the banks hands on deposit rates.
Don't hold your breath though, the RBNZ is just full of hot air on this methinks.
How about.....The RBNZ allows any of the unwashed public with an IRD number to open a Call Account with them. Just a bog-standard Call Account - no fancy add-ons like mortgages or term deposits or e-banking. Then, it can control the level of interest on short term funds at its desire. If it wants short term % rate up, then pay 5% on At Call money and 0% when it wants them lower. The commercial banks would then have to compete accordingly across longer term deposits, or not, as they see fit.
Another side effect is that there would be no need for a Bank Guarantee, as anyone who had concerns about the commercial banks, could park their funds with the already taxpayer backed RBNZ.
No matter what way I look at it, this always seems to be the logical outcome. Not a transaction account. Just straight account with the in/outs via a nominated at a retail bank.
Completely removes the need for bailouts, deposit insurance, everything...
Money at RBNZ = Safe. Money elsewhere = unsafe.
Agree. I have always promoted that the RBNZ should encroach into the retail space. Imagine if the profit made was returned to shareholders aka tax payers. Is anyone aware of a central bank that has a commercial operating arm? A basic principle should be a return on capital after tax and inflation. Just 2%....that is all I want.
Surely, the key reason deposit rates haven't gone up very much is that banks have been able to raise sufficient funding with rates down where they are. They are never going to pay more for funding than they need to. And of course they have been helped in the funding task, until very recently, by a subsidy on funding provided by the Reserve Bank aka 'the funding for lending scheme'.
If you have under 5K, put it on call for for 3.35% (or 4.10% for 90 days notice)
https://www.kiwibank.co.nz/personal-banking/accounts/compare-account-ra…
This is likely to be implemented as a central bank digital currency - which would likely function pretty much as you describe.
The question being, as always, implementation, support and of course currency backing.
Does RBNZ have the technical ability to implement a digital currency? Maybe. I've met good folks that work there for sure, but any with any knowledge at all of cutting edge tech? Not really.
Does RBNZ have any experience of any type of retail banking? Or the ability to provide support for such? Not at present, but presumably there'd be some sort of hookup with Kiwibank on that end.
Would RBNZ and/or the government provide guarantees for said digital currency? I'd imagine they'd have to - else it would just be anther puppy-coin or whatever the latest flash in the pan is.
Hah. I've repeatedly commented on borrowing rates rising faster than savings rates in a rising interest market, and the opposite in a falling interest market. Of course banks are going to want to secure their margins. At least with Kiwibank the profits stay in New Zealand.
Note that I say profits, not revenues. The usual response from the Australian banks here is that "they pay rents, rates and taxes, and hire staff." Sure, which they subtract from NZ revenue and whatever is left over goes to Australia. Very little re-investment in NZ, and in most cases, none at all as they are closing branches and laying off staff.
"What about the Westpac chopper and other charitable donations?" Only the bare minimum to show they are doing something. All tax free of course. Would I prefer they didn't? Of course not. I would prefer they did more. A lot more.
Offshore owned enterprises in NZ should be restricted to what they can move overseas. 50% of NZ generated profit seems like a fair number. Imagine if ANZ, BNZ, ASB and Westpac were forced to keep half their profit in NZ? That would be $3b for 2022 alone.
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