Kiwibank owner New Zealand Post looks set to close a number of outlets due to financial pressures partially caused by its banking arm, Vernon Small reports on Stuff.
The announcement reignites questions over the viability of the government's support of the State-owned bank as it strives to increase its market share and expand out from small-medium enterprise lending and play and compete with the big Australian banks.
"Currently, the group loses NZ$40 million per annum ... for services provided to the postal business, Kiwibank, and third parties," NZ Post Chairman Michael Cullen said in a letter to SOE Minister Simon Power earlier this year.
Kiwibank's after-tax profits for the six-month period to December grew from NZ$5.4 million in 2005 to as high as NZ$25.8 million in 2008, although that fell to NZ$13.9 million last year. However, despite the bank appearing to be profitable on its own, it is still effectively subsidised by NZ Post (and therefore the taxpayer).
In the six months to December 2010, with an after tax profit of nearly NZ$14 million, Kiwibank received NZ$20.8 million worth of "payment services fee income" from NZ Post. Kiwibank is paid to run the post shops, providing bill payment and other services to NZ Post customers.
The government also provides support for Kiwibank's credit rating through an agreement to provide currently uncalled capital on commercial terms in the case of a significant unforseen event that would hit the banks books and trigger a possible downgrade.
Kiwibank striving for growth
Meanwhile, the Herald reports Cullen's comments to Parliament's Commerce Committee last month that Kiwibank had been staffed and organised on the assumption of very strong growth.
"At any particular point in time it's staffing is reflecting the anticipated needs for the growth of the next phase rather than it's current service delivery profile. As a consequence its actual cost ratio is actually quite high by banking standards," Cullen said.
"This period of slow growth, which is going to be inevitable for Kiwibank over the next year or two, is probably an opportunity to address more firmly that issue of cost reduction within Kiwibank itself," he said.
Your view?
There were suggestions last year that half of Kiwibank could be sold off for the type of 'mixed-ownership' scheme the government is looking at for the State-Owned power companies. Should this be looked at again?
Kiwibank still currently puts pressure on NZ Post and the government's resources as it strives for growth. Should it continue to be subsidised for a few years while it gains its market share, or should it be made to be profitable on its own now (it's had a number of years to figure out how to do that itself now)?
With New Zealand's postal system declining due to e-mail and other forms of communication, should there be cuts to that side of the NZ Post business, so that Kiwibank can still be supported until it's able to be profitable on its own?
Meanwhile, Kiwibank is borrowing hundreds of millions of dollars in offshore 'hot' money markets and lending it back into New Zealand's mortgage market at record low interest rates. See our article here.
We welcome your views and insights in the comment section below.
6 Comments
....this has been a sham for years. Kiwibank took on NZ Post's payment services revenue and started reporting profits - on it's own it was a big loss-maker. Glad to see they started to own up.
They might also like to own up about the governments capital injections to cover their reserve requirements for the increase in mortgage business they've had. This would show it as even more of a disaster. Also they might like to expalin why in the middle of the recession they were reporting almost no bad debts when all the others banks were getting hammered - who was paying people's mortgages when they lost their jobs? Was it Winz??
This is one crown asset that has to be 100% sold - but is there any bank or other financial organisation gulible enough to do so, I'm not sure ?
But the one thing you can take for granted is that majority of the NZ public would vote to retain this sink hole of tax payers dollars, thinking that someone other than themselves is the one actually pissing it away.
...I don't think the punters would have a clue Grant. They'd just fall for the politicized spin hook, line and sinker that's been pouring out about what a wonderufl success kiwibank has been....then be horrified when it was sold...I guess at least now there's a modicum of more honest reporting of its financials. If people learn the truth that's the start to being able to make the right decisions about an asset.
Iain - the likes of Kiwibank & TSB aren't borrowing from overseas for "lending into risker areas", they are borrowing from overseas simply as a result of the fact that the RBNZ quite rightly increased the reserve deposit requirements of all the NZ trading banks, thus forcing a price war on retail deposits. As it became increasing competive, that source of funding proved insufficient for the locally owned banks to continue expanding their businesses and as a result they were forced to borrow offshore as the Aussie banks have done for many years. Its simply a reflection of the fact that NZers do not save enough, and to retain their life styles, banks have had to access other countries savings to keep them going.
I think I agree with what else you're inferring that it would be nice for all NZ servicing business to be locally owned, and retain the income here, but for the reason stated above, that's a pipe dream - we don't save and we don't have the capital to finance such businesses or we would. The one area that I want strength in businesses is in the risk areas such as banking and insurance (AMI being a good example of the risk of local owned companies). Whilst just about all Western banks including NZ & Aussie banks had to use Govt support during the GFC when all confidence was lost, at least we had a banking system that was sound and continued to lend to reasonable credit risks, rather than dry up as has happened in most western countries outside of Australia & NZ and compound their recessions - God help us if all our NZ banks had been only locally owned over the last two years.
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