Kiwibank posts annual profit of $126 million as net interest income rises, lending grows and bank writes back provisions for Covid-19 loans

Kiwibank’s annual profit was up 121% as a result of strong home loan growth, after the reversal of loan losses and a 16% increase in net interest income.

Kiwibank’s after-tax net income for the year increased $69 million to $126 million of $57 million in the June 2020 year. That’s just below the bank’s record annual profit of $127 million in 2015.
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Operating income increased $44 million, or 8%, to $577 million, up 3%, or $14 million, in operating expenses to $422 million.

Net interest income increased $73 million, or 16%, to $528 million. Net interest income is the difference between the income generated by a bank’s interest-bearing assets, such as loans, and the costs associated with paying its interest-bearing liabilities, such as deposits. Kiwibank’s net interest margin increased eight basis points year-over-year to 2.03%.

CEO Steve Jurkovich told that rising net interest income was helped by “a really strong move” by savers away from time deposits to on-demand deposits with typically lower interest rates.

“People’s willingness to commit their money to a 1% return is quite low. So we haven’t seen a shift from banks in terms of people holding their savings there, but we’ve definitely seen a really big shift in the deposit mix, going into escrow accounts and moving away from term deposits,” says Jurkovich.

Meanwhile, Kiwibank recorded loan loss reversals of $19 million from credit losses of $51 million in June 2020.

The bank’s total lending grew $3 billion, or 13%, with residential mortgages up $2.2 billion, or 11%, and corporate lending up $800 million, or 51%.

Jurkovich says a combination of strong credit and deposit growth, cost discipline, benefits from technology and digital investments, and the expected release of bad debt provisions for COVID-19 contributed to the improved result.

“The strong housing market has played an important role, as has our consistently competitive and market-leading interest rates. In addition, the focus on increasing our frontline banking expertise and starting to expand our reach through advisors demonstrates our evolving business and the shifts we are making to better meet customer preferences, as well as how we get there. show up to help more Kiwi homeowners in a variety of ways,” says Jurkovich.

He says Kiwibank is working to support all customers affected by the latest Covid-19 Level 4 lockdown, pointing out the fear and uncertainty some may be feeling.

“We acted quickly to update the information on our website. We urge customers concerned about their financial situation to contact us so we can review the options available,” said Jurkovich.

“As the situation changes from day to day, we will continue to monitor and respond where necessary.”

Kiwibank’s Tier 1 capital ratio, as a percentage of risk-weighted exposures, declined in the year to June to 10.9% from 11.4%. The current minimum imposed by the Reserve Bank is 7%. The bank’s total capital ratio rose from 12.6% to 13.2%, from the minimum of 10.5%.

During the year June 2021, Kiwibank paid its shareholders – the NZ Super Fund, ACC and NZ Post – $6 million in dividends, down from $17 million the previous year.

Kiwibank’s press release is here.

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