PSIS to become The Co-operative Bank after being granted bank registration; 130,000 members to each have one share and be paid rebates linked to size of their business

By Bernard Hickey

PSIS, the former Public Service Investment Society, has announced it has been granted bank registration by the Reserve Bank and will change its name to The Co-operative Bank.

The Co-operative Bank said its 130,000 members would each be granted a share with equal voting rights in the new bank.

They may receive rebates in future related to the size of their business with The Co-operative Bank.

PSIS had its credit rating upgraded to BBB- by Standard & Poor's in May, which is the credit rating agency's lowest investment grade rating and was seen as a prerequisite to obtaining bank registration from the Reserve Bank.

Douglas Widdowson, a former adviser on domestic deposit taking oversight at the Reserve Bank, has this year been working for PSIS in risk and as a secretary to the co-operative's board, helping with the push for bank registration. PSIS is also taking on two new directors former ANZ National Bank deputy CEO Steven Fyfe and ex-president of the New Zealand Council of Trade Unions, Ross Wilson.

PSIS is piloting a lending project to small businesses through a handful of its 32 branches this year as it looks to diversify its income base without moving too far away from its personal banking bread and butter business. See more here.

The Reserve Bank confirmed PSIS had been registered as New Zealand's 21st bank, would remain a co-operative and change its name to The Co-operative Bank Limited.

PSIS chairman David Gascoigne said PSIS decided it would be better served as a bank, particularly in the wake of finance company collapses and the Global Financial Crisis when customers of many financial institutions sought the perceived safety of a bank.

“Our main focus has been the protection of our customers’ rights and privileges. Securing bank registration will not alter the way we operate, or our commitment to our customers," he said.

A series of 40 focus groups with customers in recent months had looked at the PSIS name and concluded a name change made sense. The PSIS was still perceived as a financial institution for those in the Public Service, whereas it had been open to all members of the public since 1995, Gascoigne told a news conference in Wellington.

Chief Executive Girol Karacaoglu said the co-operative model had been successful during the global economic crisis.

“At a time when investors’ faith has been shaken throughout the world, co-operatives have not only survived but thrived. People have been attracted and remained loyal to the conservative governance and risk management that’s part of the co-operative ethos. We exist solely for the benefit of our members, and their best interests are our number one priority," he said.

Gascoigne said The Co-operative Bank had no intention of being listed on the stock exchange and any change of ownership would be just as difficult as it had been in the past.

"Our constitution makes it difficult if not impossible," he said, adding each member would only have one share, which was not transferrable or saleable or giftable or able to be passed on to family members.

"It's hard to see how it could be taken over."

'Profit concious, not profit driven'

Any public flotation would also change the underlying fundamentals of the institution's nature of being profit concious rather than profit driven, they said.

Gascoigne said PSIS was not registering as a bad because of insufficient capital or any financial stress. The Co-operative bank had tier one capital of 17% of assets, well above its own target of 15% and the Reserve Bank's 8% requirement.

Its annual report shows  had total assets of NZ$1.45 billion as at March 31 and shareholder reserves of NZ$124 million. It made a profit before tax of NZ$9.3 million on operating revenue of NZ$122.1 million.

This is in stark contrast to PSIS in 1979 when its assets were frozen by the then Muldoon Government and it was placed under statutory management. It emerged from statutory management in 1987. Shortly before the statutory management it had 182,000 members and 23% of households had a link to PSIS. It also owned 9 travel agences, 3 wholesale liquor outlets and several motels and other property.

The Co-operative Bank has 90% of its assets in mortgages and 90% of its funding is from term deposits.

Karacaoglu said The Co-operative Bank's focus would remain on personal banking and it had no plans to get into commercial banking, although it would offer small business services to existing customers.

'Faster than system, but not dramatically so'

It currently had a market share of around 0.6% and aimed to grow organically by offering full banking services to its existing customers, around 65,000 were using other banks for their main banking services.

Karacaoglu said The Co-operative Bank aimed to grow lending and deposits above the rate seen in the rest of the banking system, "but not abnormally so."

He cautioned against growing too quickly.

"We're not out there to steal market share from the other banks," he said.

"Any bank that focuses on balance sheet growth ends up in disaster."

(Updated with video and comments from news conference and picture of The Co-operative Bank Chairman David Gascoigne, CEO Girol Karacaoglu and RBNZ Governor Alan Bollard)