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Media Briefing

Financial Results – 30 June 2010

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Topics Covered

Key Achievements

Profit Performance

Balance Sheet Growth

Key Ratios

Capital Adequacy

Credit Quality

The Future

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Key achievements

Profit after tax of $45.8m for the year ended 30 June 2010, a 13% decrease on previous year’s profit of $52.5m *

Continued growth in balance sheet since June 2009: Lending increased 23% by $1.93bn to $10.42bn (52% 2008/9) 3% increase in retail deposits from $6.72bn to $6.91bn

( 39% 2008/9) wholesale deposits from $1.55bn to $3.38bn, (118%)

Continued growth in market share – Main Bank from 6.9% to 7.8% (Roy Morgan)

Capital strengthened by $150m perpetual preference shares in May 2010

A$250m five year fixed rate Kangaroo bonds issued in Oct 09

* (June 2009 excludes $11.1m one-off gain for sale of group subsidiaries to 100% NZ Post subsidiary, Kiwi Group Holdings Ltd)

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Launched Kiwibank Kiwisaver with more transparent pricing and opportunity to actively manage investment

Loaded for Travel card which is a pre-paid, 5 currency reloadable travel card launched in June 2010 – a world first

Prime sponsor of the New Zealander of the Year Awards

“Best Value Bank” four years in a row (Canstar and Sunday Star Times)

Coveted Bank of the Year award by London-based The Banker magazine

Awarded New Zealand’s most trusted bank brand by Reader’s Digest

Launched Heaps! personal financial management tool as part of internet banking

Key achievements continued

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Key achievements continued

Launched 3 new Go Fly (Air New Zealand) credit cards with family bundling of airpoints and grabaseat Thursdays

Created Kiwi Connector, a youth website providing information, competitions and music

Payments introduced Passport renewal service for British High Commission

Relaunched Business Banking internet banking

Launched Kainga Whenua loan scheme with Housing New Zealand Corporation

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Financial Performance – Profit & Loss

Financial performance impacted by very strong competition in the domestic retail deposit market reducing margins between borrowing and lending.

* June 09 excludes $11m for sale of group subsidiaries to 100% NZ Post subsidiary, Kiwi Group Holdings Ltd

Dollars in thousands Jun-10 Jun-09 % growth

Net interest income 133,390 163,413

Other income * 168,052 138,328

Total operating revenue 301,442 301,741 -0.1%

Total expenses (236,762) (229,291) 3.3%

   

Profit before tax 64,680 72,450 -10.7%

Income tax expense (18,832) (19,975)

   

Profit after tax 45,848 52,475 -12.6%

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Financial Performance - historical summary

Bank emerged from recession with good volume growth, strengthened capital base and is on track to increase profit over the coming year

* June 09 excludes $11m for sale of group subsidiaries to 100% NZ Post subsidiary, Kiwi Group Holdings Ltd

Dollars in thousands Jun-10 Jun-09 Jun-08 Jun-07 Jun-06 Jun-05 Jun-04

Interest income 563,886 648,891 559,105 318,963 188,157 119,337 65,197

Interest expense (430,496) (485,478) (444,004) (239,965) (136,222) (83,046) (42,791)

Net interest income 133,390 163,413 115,101 78,998 51,935 36,291 22,406

Other income * 168,052 138,328 122,997 124,558 98,373 75,038 58,839

Total operating revenue 301,442 301,741 238,098 203,556 150,308 111,329 81,245

Operating expenses (218,902) (214,946) (179,432) (158,414) (125,155) (99,504) (79,929)

Impairment allowances (17,860) (14,345) (4,097) (460) (1,892) (946) (1,887)

Profit before tax 64,680 72,450 54,569 44,682 23,261 10,879 (571)

Income tax expense (18,832) (19,975) (17,748) (13,830) (7,490) (3,640) 81

Profit after tax 45,848 52,475 36,821 30,852 15,771 7,239 (490)

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Financial Performance - Balance sheet

Lending growth continues despite slowdown in the housing market

Strong depositor support continues to maintain retail funding ratio

Wholesale assets maintained at high levels to reflect liquidity requirements of uncertain environment throughout the year

Dollars in thousands Jun-10 Jun-09 % growthAssetsLoans and advances 10,418,502 8,492,013 23%Wholesale & other assets 1,819,873 1,879,022 Total assets 12,238,375 10,371,035 18%

Financed by:LiabilitiesRetail deposits 6,911,909 6,717,042 3%Wholesale deposits 3,383,416 1,548,534 118%Securities issued & other liabilities 1,354,287 1,750,293 Total Liabilities 11,649,612 10,015,869 16%

Shareholder's equity * 588,763 355,166 66%Total liabilities and shareholder's equity 12,238,375 10,371,035

Ratio retail deposits to retail lending 66% 79%

* Includes $15m capital injection in Dec 2009 and $150m perpetual preference shares issued in May 2010

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Financial Performance (key ratios)

* June 10 excludes $150m perpetual preference shares issued in May 2010* *June 09 excludes $11m for sale of group subsidiaries to 100% NZ Post subsidiary, Kiwi Group Holdings Ltd

Ratios in percentage terms   Jun-10 Jun-09

Profitability measures

Net interest inc./avg.total assets 1.2% 1.9%

Net profit after tax/avg shareholder's funds * 11.5% 15.4%

Efficiency measures

Operating expenses/total income ** 72.6% 71.2%

Operating expenses/avg total assets 1.9% 2.4%

Average Balances ($000's)

Lending - Fixed Mortgages 148 142

Deposits - Term Deposits 81 84

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Financial Performance – Capital Adequacy

Total Capital ratio under Basel II is 12.0% compared to RBNZ’s minimum regulatory capital ratio of 8%

Total capital increased by $203.1m to $722.1m, a 39% increase from June 09.

$150m perpetual preference share issue in May 2010

$15m share capital injection by NZ Post to support business growth in December 09

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Credit Quality (Impaired Assets)

The table shows our total impaired assets as a % of total assets from latest available Key Information Summaries. Kiwibank remains favourably placed against other banks

The ratio has remained consistent across strong balance sheet growth as a result of targeting low LVR, seasoned (i.e. existing, switching) customers to maintain the quality of our lending book.

Impaired Assets of $37.8m include all assets where interest charges have been suspended and a specific provision has been raised

Source: June 10 GDS for Kiwibank and latest published GDS’s for other banks

Bank Latest KISPrevious Quarter

KIS

Kiwibank 0.31% 0.37%

ASB 0.60% 0.50%

BNZ 1.09% 0.91%

Westpac 1.30% 1.23%

ANZ/National 1.51% 1.00%

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Credit Quality (Total Credit Provisions to Total Assets)

A key focus from management and RBNZ is the total credit provisioning to total assets

Each bank has a different product and risk portfolio to Kiwibank which has a high % secure mortgage book and LMI insurance for assets over 80%.

Source: Most recently available GDS’s

Bank Latest GDSPrevious Quarter

GDS     

Kiwibank 0.17% 0.13%

ASB 0.49% 0.48%

BNZ 0.76% 0.66%

Westpac 1.26% 1.02%

ANZ/National 1.28% 1.08%     

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The future

Continue strong customer growth through being the banking leader in “value for money”

Strong focus on helping customers switch to Kiwibank and driving change to make switching between banks easier

Continued development and promotion of financial management tools (heaps!) and encouraging savings

Consider any investment opportunities in the market as they arise

Active “customer care” programme to help financially distressed customers.

Growing insurance business – Bancassurance

Not currently intending to renew Government Retail Guarantee (comes up for renewal in October)