Kiwibank Banking Group posted a 57% drop in full-year net profit while its holding company, Kiwi Group Holdings, reported a 56% drop, due to the significant impact of an IT project impairment.
Kiwibank’s net profit was $53 million in the year to June 2017 versus $124 million in the previous period while its underlying profit was $122 million compared with $124 million in the prior period. The bank’s holding company, Kiwi Group Holdings, which includes Kiwibank, Kiwi Wealth and Kiwi Insurance, posted a 56% drop in net profit to $58 million from $131 million.
The result was significantly impacted by an impairment of $90 million ($65 million after tax) relating to the work in progress on the IT project known as CoreMod, the Wellington-based company said. The decision to make the impairment is a result of a strategic review of the project aimed at modernising the company’s core banking system.
Chief executive Paul Brock said meeting rapidly changing technology and customer requirements is key. “In the past year over 40% of sales, for example, were completed through a digital channel. More than 57% of customers digitally connect with Kiwibank, collectively over 27 million times each month,” he said. Those numbers are expected to climb.
As a result, CoreMod is being reviewed to assess the value of some of the work completed so far. While this review is being completed, a decision has been made to impair the value of the work in progress which sits on the balance sheet as an intangible asset, Kiwibank said.
Kiwibank increased its total lending on home loans, business banking and credit cards by 6.8% to $17.8 billion, while its customer deposits increased 8.1% to $16.00 billion. It had an 8.0% market share at the end of June. Its operating expenses were $339 million versus $301 million in the prior year.
The ownership of the holding company was diversified during the financial year. Previously wholly owned by the state-owned postal service New Zealand Post, the group now has three government shareholders, with NZ Post owning 53%, the New Zealand Superannuation Fund 25% and the Accident Compensation Corporation 22%.
Earlier this month Kiwibank announced Mr Brock will leave the state-owned lender at the end of the year, ending seven years in charge of the country’s fifth biggest bank.