The bank's December quarter general disclosure statement (GDS) shows net profit for the three months ended December fell 40% to $9.7 million, largely because of a 27% drop in net interest income to $33 million.
Managing director Sam Knowles says the fall is primarily a consequence of new Reserve Bank regulations which has intensified competition for retail deposits. "As a consequence, the premium paid for retail deposits is very high," Knowles says.
Kiwibank is heavily reliant on deposits to fund its lending although it is now sourcing more funding from wholesale deposits. In the six months ended December, retail deposits funded 71% of retail lending, down from 90% in the same six months a year earlier.
"We're making a call to largely carry the transition costs of Reserve Bank policy, which supposedly is going to improve New Zealand's financial stability," Knowles says.
With the average duration of retail deposits being about 100 days, "it doesn't take long for that cost to come through."
The GDS shows Kiwibank's interest income was actually negative $15.4 million in the three months ended December while interest expense was negative $48.4 million.
Net profit for the six months ended December was down 8.7% to $23.5 million.
Kiwibank's mortgage book grew $587.4 million in the three months ended December, below the $614 million growth in the September quarter. However, using Reserve Bank figures as a proxy for the market, it gained 37.9% of the total $1.55 billion increase in lending by registered banks in the December quarter.
Knowles says Kiwibank's focus has always been on the refinancing part of the market. "We've just gotten a head of steam up and we're steaming on. We're persuading people we've got a slightly better offer."
With its mortgage book at $9 billion at December 31, Kiwibank's share of the mortgage market was 5.55%, up from 5.24% three months earlier.
Of the total mortgage book, 79% of lending has loan-to-valuation ratios (LVRs) below 80%. Of the 9.3% of lending, or $829.5 million, at LVRs above 90%, $237.2 million are government-backed Welcome Home loans and Kiwibank uses loan mortgage insurance to mitigate risk on all other loans with LVRs above 80%.
