Government uncalled capital decision boost for Kiwibank
New Zealand Post Group CEO Brian Roche has welcomed the Government's decision to provide uncalled capital support on commercial terms to the Group in order to provide credit rating support. Long term stability of New Zealand Post's AA- credit rating will enable Kiwibank to continue its successful growth strategy.
"Kiwibank is vital part of the New Zealand Post Group. The Government's decision is a major boost in helping the bank retain a credit rating which will enable it to continue to grow and expand its range of services to the market.
"Kiwibank is a remarkable success story, achieving over 700,000 customers in eight years, delivering quality straight-forward banking to New Zealanders.
"New Zealand Post Group wants to take Kiwibank go to the next level, expanding into new sectors such as business banking," said Mr Roche.
New Zealand Post Group did not require a direct capital injection from the Government. Kiwibank has sufficient capital for immediate growth plans, aided by the raising of NZ$150 million of tier 1 capital through a perpetual callable non-cumulative preference share issue earlier this year by Kiwi Capital Securities Ltd.
Mr Roche said the uncalled capital could only be utilised as protection against a significant unforeseen external event, and was not available to fund growth activities or support deterioration of earnings in regular business.
"What the uncalled capital does provide is the base for a stable credit rating from which New Zealand Post Group can launch ambitious and exciting growth plans for Kiwibank. That will be good for the Group and all New Zealanders," said Mr Roche.
The Government and New Zealand Post Group are in the final stages of finalising the terms and conditions under which the facility will be provided. A further announcement on these details will be made once they are available.
Uncalled Capital Decision - Questions and Answers
How does uncalled capital help the New Zealand Post Group/ Kiwibank?
The uncalled capital is a vital plank in maintaining an AA- credit rating with international agency Standard & Poor’s (S&P). That rating is required if Kiwibank is to continue to grow and expand.
The rapid growth of Kiwibank, its relative newness and plans to expand into new areas of business all put pressure New Zealand Post Group’s credit rating. The Group requires an AA- credit rating if the bank is to compete with the four main Australian banks and expand into new sectors such as business banking. The provision of the uncalled capital will help achieve that rating level.
Is the uncalled capital a capital injection?
No. The capital could only ever be called on by New Zealand Post Group in tightly defined circumstances such as Kiwibank experiencing a substantial shock event beyond its own resources and beyond the resources of its parent. The capital could not be called on to support items such as cyclical deterioration of earnings or to fund growth activities.
What would be regarded as a 'substantial shock' deemed necessary to trigger the calling up of the capital?
New Zealand Post Group is working the Crown Ownership Monitoring Unit (COMU) to finalise the terms and conditions under which the facility will be provided. It would be an external event beyond the control or resources of Kiwibank and the New Zealand Post Group. The recent Global Financial Crisis has highlighted the need for groups active in financial services to have various mechanisms in place that can be accessed in the event of shock events. Uncalled capital is one such mechanism that is not the final answer to shareholder support, but one that provides a degree of certainty and timeliness in the group's ability to respond rapidly to potential issues.
Doesn't Kiwibank need capital to grow?
Yes, and for the moment it has the capital it requires for its growth plans. The bank raised $150 million of tier 1 capital earlier this year with a perpetual callable non-cumulative preference share issue earlier this year by Kiwi Capital Securities Ltd.& New Zealand Post Group is confident of Kiwibank Ltd's ability to fund expansionary activity from expected improved earnings.
Does the uncalled capital increase the Crown 'ownership' of the bank?
Kiwibank Ltd is already a wholly owned subsidiary of the New Zealand Post Group, which is a State Owned Enterprise (SOE).