The subsidiary of New Zealand Post reported net income of $45.8 million in the 12 months ended June 30, from $63.6 million a year earlier.
Interest income dropped 13% to $563.9 million, outpacing an 11% decline in interest expenses to $430.5 million, in a low-interest rate environment where lenders were forced to woo depositors to comply with pending prudential regulations.
Earnings were "a little disappointing, but to be expected in a very tough financial environment," said chief executive Sam Knowles in a statement.
Kiwibank's performance was affected by the very strong competition in the retail deposit market, he said.
Though the bank's margins came under pressure, it grew its share of the market with aggressive pricing as its Australian-owned competitors took a more conservative stance in the wake of the global financial crisis. Kiwibank's loan book grew 23% to $10.4 billion, while its retail deposits increased 3% to $6.9 billion. It more than doubled its wholesale deposits to $3.4 billion.
Separately today, the New Zealand government said it will provide uncalled capital support for the lender to protect its AA- credit rating with Standard & Poor's. The bank needs the rating to raise funds and expand into corporate banking.
In May, the lender's outgoing chief executive Sam Knowles said it needed south of $100 million to enter the corporate sector and win rivals from its Australian-owned competitors. This year, the bank has also raised $150 million through a preference share issue and A$250 million through a bond issue.
Knowles will step down as CEO once a replacement has been found, while chairman Jim Bolger will be succeeded by Michael Cullen in October.
