NZ Post eyes NZ$100 million capital injection for Kiwibank over next three years; To come from retained earnings, parent investments

By Alex Tarrant

State-owned Kiwibank is set to get a NZ$100 million capital injection over the next three years.

Parent NZ Post's latest statement of corporate intent for 2012-2015 notes planned Kiwibank capital injections of NZ$30 million in 2013, NZ$40 million in 2014, and NZ$30 million in 2015.

That comes out of total NZ Post capital demand of NZ$312 million over the three years.

A Kiwibank spokesman told interest.co.nz the injections were ongoing tier 1 capital for running the bank.

"It covers lots of things: regulatory capital, computer systems, and bank growth," the spokesman said.

Kiwibank is also currently raising NZ$150 million through a bond issue.

Banks are preparing for the introduction of the Basel III capital adequacy rules from next year. Although New Zealand's banks are well placed to meet the requirements placed on them by the Reserve Bank to hold more capital, Kiwibank had the second lowest total capital ratio as of June 30 at 11.3%, ahead of only Rabobank New Zealand's 11.18%.

The existing 8% Reserve Bank mandated minimum total capital ratio will be lifted to 10.5% from next year.

As of June 30 Kiwibank also had the highest leverage of the New Zealand banks. Kiwibank's assets exceeded its shareholder funds by 19.7 times, well up on the sector average of 12.7 times.

A New Zealand Post spokesman told interest.co.nz that the capital will be sourced from within the New Zealand Post Group. (An earlier version of this story in our morning email questioned whether the capital would come straight from the government.)

"New Zealand Post Group has invested circa NZ$500m in capital in Kiwibank over the last ten years. That has been a mixture of retained earnings by Kiwibank and capital injections from the parent. The capital demands as outlined in the SCI are a reflection of that ongoing investment pattern," the NZ Post spokesman said.

Any capital requirements above and beyond what was stated in the SCI would be subject to "discussions with our shareholding Ministers on identifying the quantum and source of capital required."

Discussions with Ministers...

In Budget 2012 the government noted it might earmark proceeds from the NZ$5 billion to NZ$7 billion partial sell down of state-owned enterprises Mighty River Power, Genesis, Meridian and Solid Energy for a capital injection into Kiwibank.

See May 2012 article: Govt positions itself for Kiwibank capital injection in next few years; From partial asset sale proceeds.

Kiwibank and NZ Post are also spending tens of millions sprucing up their branch network. NZ Post's statement of intent for 2011-14 says it'll spend NZ$30 million in each of 2011/12 and 2012/13 on "transformation Investments" to, in particular, cover changes to store networks.

Meanwhile, in December 2011, banking analysts from First NZ Capital said they believed Kiwibank needed about NZ$200 million in new capital over the next four years for the bank to become self sustainable and able to pay dividends. For the year to June 30 Kiwibank recorded a bumper record annual profit of NZ$79.1 million with all earnings retained.

See Gareth Vaughan's December 2011 article, Some 14 years after it launched and nearly NZ$830 mln later, Kiwibank predicted to become a self sustaining dividend payer in 2016.

Last month, Standard & Poor's cut Kiwibank's credit rating by one notch from AA- to A+.

NZ Post's latest statement of corporate intent lists an equity value of Kiwibank at NZ$878 million at June 2012, up NZ$28 million from NZ$850 million last year.

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