Southland Building Society wins bank license

The Reserve Bank has announced that New Zealand's largest building society, Southland Building Society (SBS), has been registered as a bank in New Zealand. "Southland Building Society will continue to be a mutually-owned building society although also registered as a bank," the Reserve Bank said in a statement. SBS Chief Executive Ross Smith said in a statement the building society had been considering the move for years. "Our decision had little to do with the current world financial crises but was more due to the proposed changes to the non-bank regulatory regime and the issues around a number of financial company failures," Smith said. "Since securing our investment-grade credit rating last year, and making the minor changes to our rules to align with the governance requirements of the Companies Act, we have been ready to become a bank," he said. SBS said it had been determined to keep its mutual status through the process of gaining a banking licence. "In attaining bank registration as a building society, we have made financial history by becoming the first Building Society registered as a bank in New Zealand and probably the world," Smith said. "At a time when investors' faith has been shaken, bank registration automatically differentiates us, reflecting our heightened standards of governance and risk management," he said. "Becoming a member-owned bank ensures our relationship with our members remains unchanged and we are not distracted by the need to satisfy shareholder returns. We will be a bank with the heart of a building society," Mr Smith said. SBS has said it has NZ$2.4 billion of assets, of which 96% is secured by real estate. It says it has NZ$450 million of committed funding lines. Here is SBS's latest General Disclosure Statement. In July this year Fitch Ratings affirmed SBS's ratings at BBB Here's the full statement with that affirmation.

SBS reported solid lending and deposit growth in FY08, reflecting the strength of its national franchise and dominance in NZ's non-bank financial institutions sector. The society also maintained a relatively high net interest margin of 2.59% in the face of intense competition, particularly in the retail deposit market. However, a downturn in some isolated areas of NZ's property market and a conservative approach to loan provisioning resulted in higher loan impairment charges, and operating profit decreased by a modest 4% to NZ$21 mln in FY08. The society maintains a conservative approach to risk management. Loan quality is managed within prudent limits and receivables are generally of high quality, being primarily residential mortgages. More than 95% of the loan portfolio is secured by real estate and SBS has only a modest exposure to construction and development finance. Reflecting a more challenging external environment, SBS's asset quality showed some deterioration during FY08, with gross impaired assets increasing to NZ$8.4m (NZD0.6m). While this represented a higher 0.36% of gross loans and advances at FYE08 (FYE07: 0.03%), these ratios are very low by local and international standards. SBS is structured as a "˜mutual' in that it is owned by its members. More than 80% of its funding comes from retail sources, mainly in the form of retail share deposits which have fixed maturities, fixed interest rates and dividends benchmarked to term deposits rates. The society is not presently regulated by the Reserve Bank of NZ, however, it is required to meet a minimum equity/assets ratio of 4% as set out in its Trust Deed. SBS reported an equity/assets ratio of 6.23% at FYE08. Using risk-weightings that apply in calculations under Basel I, SBS reported an equivalent Tier 1 capital ratio of 9.48% at FYE08, which is above the average of 7.81% for NZ's major banks in H108. SBS was established in Invercargill in 1869 to provide funding for the construction of homes. By 1935, it had become the largest building society in NZ and remains so today. Products and services are distributed via a network of branches; while SBS's loan portfolio is well spread geographically across the South Island of NZ, it is gradually expanding its branch presence into the North Island.