Kiwibank Banking Group lifted first-half net profit 47.6 percent as it achieved more than twice the growth in deposits and lending in the latest six months as it managed in the whole of the previous full year.

Net profit for the government-owned group rose to $62 million for the six months ended December from $42 million in the same six months a year earlier.

Kiwibank says its deposit book grew 9.2 percent, or by $1.2 billion, after growth of $200 million in the previous full year, while its mortgage book grew by 7.2 percent, or by $1 billion, double the previous full-year growth.

Kiwibank didn’t provide any figures indicating the sizes of its deposit and mortgage books and, at the time of writing, it hadn’t released its disclosure statement for the half year.

The press release refers to the “unprecedented scrutiny around culture and conduct” and quotes chief executive Steve Jurkovich as saying that Kiwibank has a strong culture and high expectations of its people to do the right thing by customers.

“We know that trust is central to customer relationships. We are crystal clear that conduct and compliance is not a project, a one-off initiative, or a static standard that is reached – it is about continual improvement and an unwavering attention to great customer outcomes over time,” Jurkovich says in the release.

The release says Kiwibank’s capital position has “remained strong” and was accompanied by a graph suggesting its tier 1 equity was a little below 13 percent at Dec. 31, that its total tier 1 capital was a little over 14 percent and that tier 1 and tier 2 capital combined was something above 15 percent, but again Kiwibank hasn’t provided actual levels.

At June 30 last year, Kiwibank’s capital ratio stood at 15.8 percent.

The Reserve Bank is proposing to force the smaller banks to increase their tier 1 equity to 15 percent of risk-weighted assets, that quasi-equity will no longer count towards tier 1 capital – Kiwibank currently counts some quasi-equity as tier 1 capital.

The central bank is currently consulting on its proposed changes to capital rules and consultation is set to close on May 3 with a final decision expected in the September quarter. The Reserve Bank is proposing a five-year phase in period.

Kiwibank has signalled its approval of the changes the central bank is proposing to the capital rules affecting the big four Australian-owned banks.

They will have to raise their tier 1 equity capital to 16 percent of risk-weighted assets and, although they will be permitted to continue using their own internal models for calculating how much capital they need, the Reserve Bank has proposed a floor under any benefits they gain from that of 90 percent of the standard model that the smaller banks have to follow.

Accounting firm KPMG has estimated that the big four banks’ models collectively mean they only need to hold $76 for every $100 required under the standard model.

Jurkovich’s predecessor, Paul Brock, had publicly lobbied for Kiwibank to be allowed to use internal models, complaining that Kiwibank was disadvantaged by the status quo.

The proposed new rules “creates more of an even playing field in several areas, like how capital requirements are calculated, but it is not without implications,” Jurkovich says.

“We understand and support the Reserve Bank’s philosophy. It is in everyone’s interest to have a strong local banking system that is deeply invested in New Zealand and supports great customer outcomes,” he says.

“Kiwibank’s capital levels are currently significantly above regulatory requirements but we’ll need to continue to review this position over the transition period proposed.”

The reason Kiwibank’s capital is so high is that in March 2017 the Reserve Bank suddenly decided that Kiwibank’s quasi-equity might no longer count as capital, even though it had previously approved the two issues, the $100 million in capital notes, issued in 2014, and $150 million in perpetual notes issued in 2015, as counting towards total equity.

Kiwibank’s owners, New Zealand Post with 53 percent, the New Zealand Superannuation Fund with 25 percent and ACC with 22 percent, decided not to wait for the Reserve Bank to make up its mind about the validity of its quasi equity and poured in $247 million in new equity.

The Reserve Bank then changed its mind in August 2017 and decided the two issues did count as capital. However, by then, Brock had resigned ahead of Kiwibank scrapping its long-running programme to replace its core banking system and writing off its $90 million cost.

Kiwibank had also suddenly ceased growing after the government started demanding that it pay dividends in 2015 when it was still wholly-owned by New Zealand Post.

It appears from the fall in capital between June last year and December that Kiwibank is now putting some of its additional capital to work in funding growth.

Other numbers Kiwibank provided include that net interest income rose 13 percent and that its net interest margin rose from 2 percent to 2.15 percent.

It says asset quality remains high with impaired assets remaining low, but again failed to provide numbers.

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