Kiwibank first-half profit sinks 32% as IT costs mount
By Paul McBeth
Feb. 23 (BusinessDesk) - Kiwi Group Holdings, the parent of Kiwibank, Kiwi Wealth and Kiwi Insurance, posted a 32 percent slide in first-half profit as the country's fifth-biggest lender bore escalating costs of a dud IT project that's already been written down by $90 million.
Net profit fell to $44 million in the six months ended Dec. 31 from $65 million a year earlier, the Wellington-based company said in a statement. The bottom line included $8 million of impairment losses on the CoreMod IT software project and another $7 million of operating costs incurred to wind down the project. Stripping out those one-off costs, earnings still dropped 12 percent to $60 million.
The lender's annual profit more than halved in 2017 due to a $90 million impairment charge on the CoreMod project, which aimed to modernise the bank's core system. Shareholder New Zealand Post noted an uncertainty over its $40 million capital commitment for the project, saying "Kiwibank's board considers it unlikely the current project will meet its objectives".
Kiwibank acting chief executive Mark Stephen said the market has returned to more normal credit growth since a slowdown during winter and the lead-up to the September election, while cheaper funding costs had helped the state-owned bank to widen net interest margins by 8 basis points to 2 percent, lagging behind the 2.17 percent margin across the banking sector.
"Kiwibank remains committed to keeping the customer front and centre as we undertake a strategic review of the business," Stephen said. "Kiwibank remains well capitalised, with strong shareholder support, and sound underlying financial performance - all of which holds us in good stead to pursue the opportunities available to us."
The lender is still without a permanent chief executive after Paul Brock's departure at the end of last year. Under his seven-year watch, the bank has built up a customer base of one million, introduced wealth management services with the purchase of Gareth Morgan Investments and seen a juggling of its Crown ownership with Accident Compensation Corp and the New Zealand Superannuation Fund buying a 47 percent stake from NZ Post between them.
The bank's loan book grew 3.4 percent to $18.03 billion from a year earlier, while deposits were up 3.9 percent to $15.96 billion. Impaired assets were unchanged at 0.05 percent of gross loans, while the cost to income ratio widened to 75 percent from 66 percent.
Kiwi Wealth lifted revenue 20 percent to $22 million, as KiwiSaver membership grew 5.8 percent, compared to the industry rate of 1.7 percent, and supported by strong investment performance. The group's net fee and other income rose to $97 million in the half from $85 million a year earlier.