Rates strategy delivers for Kiwibank

Kiwibank’s profitability and its mortgage book powered ahead in the December quarter.

Thursday, February 26th 2009, 9:53PM

by Jenny Ruth

Kiwibank’s latest general disclosure statement shows net profit for the three months jumped 43.7% to $16.1 million, reversing a profit fall in the September quarter and taking net profit for the six months ended December to $25.8 million, up 13.9% on the previous first half.

Its mortgage book grew by $869 million to $6.39 billion in the latest three months. Using Reserve Bank figures as a proxy for total lending on residential housing by banks, Kiwibank accounted for 35.7% of the $2.43 billion of the increase in lending between September and December.

That takes its mortgage market share to 4.1% from 3.6% at the end of September. Kiwibank chief executive Sam Knowles says his bank took "a very aggressive position" by holding its interest rates below its major competitors and "front-footing" rate cuts late last year.

"We stuck to our plan of being slow to rise and fast to fall with home loan rates and it produced excellent results," Knowles says.

He notes a significant increase of mortgage holders switching to Kiwibank from other lenders to take advantage of Kiwibank’s floating rate.

Since the beginning of September, Kiwibank’s floating rate has fallen from 10.2% to 5.99% currently while ASB Bank’s, for example, has dropped from 10.75% to 6.9%.

Like the other banks, Kiwibank’s asset quality is under pressure although impaired loans remain a small part of its total assets.

The bank charged $6.2 million in impairment losses against profit in the latest six months compared with $1.4 million in the first-half last year.

Most of its impaired loans, $2.4 million, are unsecured retail lending with $2.1 million in mortgages.

Past due but not impaired loans have jumped to $337.9 million at December 31 from just $25.6 million a year earlier, of which the bulk, $299.6 million, are loans to retail customers.

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