SBS CEO says community bank plans targeting old trust bank market

SBS Bank’s plans to create a national community bank stem from a view the country needs more New Zealand owned banks and a desire to fill the space that used to be occupied by regional trust banks, the bank’s CEO says.

SBS Bank chief executive Ross Smith told interest.co.nz in a Double Shot interview the recently announced signing of a Heads of Agreement with the Hastings Building Society (HBS) on a potential merger follows SBS gaining a banking licence in October 2008 with the intention of becoming a national banking player.

“We feel there is an obvious need for more New Zealand owned banks in the country and our point of difference really is that we’re mutually owned so our customers own us and we feel that has got significant value as an attractor for new customers,” Smith said.

KPMG’s latest quarterly Financial Institutions Performance Survey shows the big four Australian owned banks – ANZ, ASB, BNZ and Westpac - had total assets of NZ$328.96 billion at March 31 compared to just NZ$19 billion split between New Zealand owned banks Kiwibank, TSB Bank and SBS Bank.

Smith said SBS Bank was not actively talking to any other potential merger partners at the moment.

“But that’s not to say that we haven’t in the past. We’ve talked to a number of the mutuals and we’ve said ‘look if there’s a time when you feel that the future is that uncertain that you want to get back in discussions with us then we’d certainly be open to discussions’,” Smith said.

The Nelson and Wairarapa building societies would be “ideal” partners and SBS Bank would be happy to get around the table and talk with them if they chose to. Smith also agreed co-operative PSIS was a potential partner.

“We’re not in discussions with PSIS but it is something that may well occur sometime in the future,” Smith said.

PSIS chief executive Girol Karacaoglu recently told interest.co.nz PSIS saw its future as a stand alone, member owned, co-operative but was open to discussions about potential mergers.

And in June Pyne Gould Corporation announced plans to merge its finance company Marac with the Canterbury Building Society and Southern Cross Building Society  to create greater scale and tap a bigger retail deposit funding base as they seek an investment grade credit rating and bank licence from the Reserve Bank. The plans envisage a NZX-listed "Heartland Bank" headquartered in Christchurch that would aim to double its NZ$2.2 billion asset base within five years through growing family, small business and agricultural lending.

Smith said although SBS Bank had held brief discussions with the two building societies involved in the Heartland Bank plans in the past, the alignment of their values - with SBS a mutual and the others taking a sharemarket listing route - were different and they agreed to go their separate ways.

The community bank plan was aimed at filling a gap, Smith said, that had been vacated by the old regional trust banks.

"In my day when we grew up we opened an account with Trust Bank. In my case it was the Canterbury Savings Bank and in other places it might have been Otago, Southland or Auckland," said Smith.

"We see that there is still a gap there. We'll be aiming mainly at the mum and dad customers, retail banking. We're not focused on business banking at this stage."

He noted, however, that SBS Bank did have a presence in the agricultural sector but was currently probably turning down more opportunities there than it was approving due to debt related stress in the sector.

SBS Bank wouldn't take an an aggressive or assertive stance with other financial institutions in any merger talks, Smith added.

"All of the, particularly mutual, building societies are aware of our plans to create a national, mutually owned bank so we certainly would entertain discussions with all of them and they're free to come and talk with us whenever they wish."

With total assets of about NZ$185 million, HBS had assets equivalent to about 10% of SBS Bank's NZ$2.6 billion and under the Heads of Agreement would merge its assets into SBS Bank. Smith said no name changes had been ruled out at this stage but the plan was to retain the HBS name in its market as long as the building society had a franchise there.

 HBS members will vote on the plans at a special meeting on August 31. Provided 75% support is secured at that meeting, the two hope to have a deal done by October 1, Smith said.

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