Retail deposit growth stalls at Kiwibank

Growth in retail deposits at Kiwibank stagnated in the December 2009 quarter with the deposits unchanged at NZ$6.9 billion, the same level as in September 2009. In the December half year, total retail deposits increased three per cent.

While the bank's business may be beginning to mature after years of high growth as a new, parochial and government-backed entity, the drop off in deposit growth will be disconcerting given the steady rates of growth in lending.

Lending by Kiwibank increased about eight per cent during the December 2009 quarter, at about the same pace as the quarter before, taking the total lending for the six months to NZ$9.8 billion, up 15 per cent

The imbalance in the growth of the deposit book and the loan portfolio has forced the bank to increase reliance on wholesale deposits.  Kiwibank's share of wholesale deposits to total deposits was around 13 per cent in September 2008 and one year later it had increased to 22 per cent.

No doubt Kiwibank is paying a premium for wholesale funding and thus the bank's profitability worsened in the December quarter.

Of the NZ$23.5 million profit made in the December 2009 half year, NZ$13.9 million was earned in the September quarter and thus only NZ$9.6 million was the contribution from the December quarter.

The bank's net profit in the December half fell nine per cent over the same period the year before, but on a sequential basis the profit drop was 38 per cent from NZ$37.8 million it made in the June half.

Kiwibank's asset quality is better than for many other lenders, with the provision for bad loans increasing only slightly to NZ$15.4 million in December from NZ$15.1 million in September. In the September quarter, however, provisions grew sharply by 19 per cent from June's NZ$12.2 million.