Kiwibank reported a slight fall in its annual profit for 2016 after further margin erosion and higher costs in the middle of a core systems rebuild more than offset higher profit from continued solid growth in lending.Kiwibank's profit for the year to June 30 fell to NZ$124 million from NZ$127 million the previous year as a NZ$12 million rise in net interest income was more than offset by an NZ$8 million fall in other income and a NZ$17 million rise in operating spending. The state-owned Kiwibank launched a four-year core system rebuild in early 2014 that it said then would cost more than NZ$100 million by 2018. It acknowledged last year the change from its Ultracs-based system to an SAP system was costing slightly more than expected. Kiwibank said with its results on Friday it had completed the build of the second phase of the project and expected to finish testing and implementation later in the current 2016/17 year. The first phase of completing the SAP payments engine was completed on time and budget in August last year.Kiwibank's lending rose seven per cent to NZ$16.689 billion through the year, while customer deposits rose 7.6 per cent to NZ$14.782 billion, meaning the lending growth was almost completely funded from local deposit growth.However, Kiwibank's net interest margin contracted to 2.05 per cent at June 30 from 2.12 per cent a year ago and 2.10 per cent at December 31, 2015, which restricted the net interest income growth from the growth in lending. Kiwibank said its margins had held up better than expected as intense competition for mortgage market share early in 2016 had initially dragged on margins, but banks have been retaining cuts in the Official Cash Rate (OCR) since early August to try to grow margin again. Kiwibank has been one of the banks retaining some of the OCR rate cut on August 11.Elsewhere, Kiwibank's parent, New Zealand Post, said the state-owned ACC Fund and the New Zealand Superannuation Fund had completed due diligence on their planned purchase of 45 per cent of Kiwibank. The deal for an undisclosed amount was announced in April and was due to be completed by June 30, but was delayed in late June. An announcement is expected within a month.