CEO Steve Jurkovich says fresh capital of $500m would give Kiwibank a lot of runway for growth

With the Government exploring ways to raise new capital to help Kiwibank try to become the "maverick disrupter" in the personal banking market desired by the Commerce Commission, the bank's CEO Steve Jurkovich says $500 million could go a long way.

Speaking to interest.co.nz after Kiwibank posted record annual profit of $202 million on Thursday, Jurkovich noted the bank had "made decent headway" with the $225 million capital infusion last year after the sale of sister company Kiwi Wealth.

"...roughly double that, say, $500 million would give us a lot of runway to keep growing as fast as we are now, which is 9.5%, 10% [per annum], which is pretty large gains. That sort of investment over the next three, four years would give good runway," Jurkovich says.

"We're always operating to a funding plan that means we can be sustainable...extra capital allows us to grow faster than our current business plan and create more competition and drive down price, which I think is the outcome that [Finance] Minister [Nicola] Willis was after and so was the Commerce Commission report, and we're keen to do that. I think that sort of investment in the shorter term gives you fuel in the tank to really make a difference and grow outside what the business plan is at the moment."

"With the right support and delivery of the right business plan and right initiatives, I think we could double our size in five years. And then, you know, obviously go from strength to strength after that, hopefully," Jurkovich says.

Banks have regulatory capital requirements set by the Reserve Bank. Capital is effectively insurance held against real and potential bad loans. And in simple terms, the more capital a bank holds, the more lending it can do. Hence the idea that getting Kiwibank more capital would mean it could better compete with the big four banks by increasing lending, and thus competition.

'A maverick disruptor'

In the final report from its market study into competition in the personal banking services market, the Commerce Commission says although Kiwibank offers similar products at similar prices through similar channels as the big four banks, the Government as owner scaling up Kiwibank by getting it access to more capital, appears the best option in the short to medium term to meaningfully promote competition.

"Capitalising Kiwibank may allow it to become a maverick disruptor in the short term, but without an explicit ongoing disruption mandate its conduct may become less aggressive over the longer term," the Commission says.

In terms of being a maverick, Jurkovich says this means acting independently, which Kiwibank does with a 100% focus on the New Zealand market.

Speaking to interest.co.nz this week, Commerce Commission Chairman John Small said he saw the main competitive benefit of scaling up Kiwibank being "about the process of growth rather than what happens once they're big."

"So we want them to be taking chunks of market share out of the big four on their way up, and for that to provoke a competitive reaction from the larger banks."

"What will really matter will be them [ANZ, ASB, BNZ and Westpac] perceiving a real threat of losing share, because that is what will stimulate them to fight back," Small said.

Growing 'without taking on edgy and risky stuff'

Is there a danger Kiwibank could look to grow too fast, potentially accepting business other banks wouldn't, and taking on too much risk?

"In the last five, six years that I've been in the job, we have not made any material change to our risk appetite. We have been able to grow and, like this year, we're growing at [about] 10%. We've been able to grow like that without taking on edgy and risky stuff," Jurkovich says.

Kiwibank's June-year results show credit impairment losses of $24 million, down from $37 million year-on-year, albeit its Impaired assets rose $34 million to $42 million, and its credit impairment provision rose $20 million to $121 million. Total assets stood at $36.65 billion at June 30.

"You can see our total credit impairment picked up a bit, but we've historically had the lowest credit impairment, so I think we've done a pretty good job. And if anything, I'd argue that over time, we've maybe been a little bit cautious on that risk appetite, but we've managed to grow."

"So I just really don't buy into the fact that you need to take on edgy stuff to grow. I think that the markets we participate in, the home loan market [it has about 7% market share], the deposit market and business banking market, are very big, deep markets. There's plenty of opportunity for us to grow for at least a decade without, I think, needing to change those sorts of settings. The business environment might change over time, and we'll have to look at that if there's different opportunities to pursue," Jurkovich says.

Majority, not full, NZ ownership probably good enough

Meanwhile, Jurkovich says it may not be essential for Kiwibank to remain 100% NZ owned, saying majority NZ ownership along the lines of the gentailers and Air New Zealand, which the previous National-led government sold down via share market floats, would be okay with him.

"...that appears to have been the preferred method historically. And it seems to have worked pretty well. I think Nicola Willis said she wants all options explored, which is encouraging."

Jurkovich notes Kiwibank already has share market listed debt securities that bring disclosure requirements.

"I think being partially listed would bring different investors with different perspectives perhaps. But again, I don't think that's hugely disruptive and plenty of businesses operate in that way. So that's one of the options and I think we've got the infrastructure to be able to do that. But it's just one of the options, isn't it?"

Last year Jurkovich told interest.co.nz any requirement to pay sizeable dividends could impact the bank's ability to grow given it has mostly grown capital via retained earnings.

Willis has asked Treasury to work with Kiwibank’s parent company, Kiwi Group Capital, to provide advice before the end of 2024 on options for raising new capital, including from KiwiSaver funds, New Zealand investment funds and investment from regular New Zealanders.

With Kiwibank currently focused on its digital transformation, she says any capital raising wouldn't occur until 2026 at the earliest. Willis also says National wouldn't list Kiwibank on the share market without first asking voters. The next election is due in 2026.