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Media BriefingFinancial Results – 31 December 2010

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Topics Covered

Key Milestones

Financial Performance

Credit Quality

The Future

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Key milestones

Profit after tax of $13.9m for the year ended 31 December 2010, a 41% decrease on prior year’s profit of $23.5m

Continued growth in balance sheet since December 2009: Lending increased 12% by $1.2bn to $10.9bn 10% increase in retail deposits from $6.9bn to $7.6bn

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

Government to provide uncalled capital on commercial terms to be utilised as protection against a significant unforeseen external event and provide credit rating support

Ian Fitzgerald appointed as new Kiwibank Chairman

Paul Brock appointed new Kiwibank CEO

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Launched Kiwibank Notice Saver product – a New Zealand first in the savings and investment market. More than half a billion of new to Bank dollars invested in the Notice Saver account

Launched our new Loaded for Travel prepaid Visa card which proved to be very successful with customers. 492 card packs sold with combined total of over $1m loaded onto them between 21-30 June

Awarded Bank of the Year by London-based The Banker magazine for the second year in a row

Awarded the 2010 Sunday Star Times Cannex Canstar Best Value Bank for the fifth year running

Awarded New Zealand’s most trusted bank brand by Reader’s Digest for the fourth year running

Key milestones continued

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Key milestones continued

In the 2010 NetGuide website awards held in August, Kiwibank’s website www.kiwibank.co.nz was voted number one in the Financial Services category

Kiwibank Kiwisaver Scheme won both the Investment Statement of the Year award and the Best Other Workplace Savings or Communication award in the industry Workplace Savings Communications award on 9 December

Finalist in two categories of the 2010 Vero Excellence in Business Supports Awards – Large Business and Individual

Heaps!, our free, personal financial management service won the TUANZ Education and Commerce Awards categories on 2 September

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Financial Performance – Profit & Loss

Financial performance impacted by significant increase in impairment losses on loans and advances from $9.7m in Dec09 to $31m in Dec10

Improvement in NII margins

Dollars in thousands Dec-10 Dec-09 % growth

Net interest income 89,373 66,357 Other income 80,016 87,754 Total operating income 169,389 154,111 9.9%

Operating expenses (118,478) (111,098) 6.6%Impairment losses (31,007) (9,731)

   Net profit before tax 19,904 33,282 (40.2%)Income tax expense (5,996) (9,733)

   Net profit after tax 13,908 23,549 (40.9%)

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Financial Performance - historical summary

Solid underlying business performance impacted by increase in impairment allowances, reflecting falling values of certain classes of property collateral

* Dec 09 excludes $0.8m profit from The New Zealand Home Loan Company and Kiwi Insurance which was sold to 100% owned NZ Post subsidiary, Kiwi Group Holdings Ltd in June 2009

Dollars in thousands Dec-10 Dec-09 Dec-08 Dec-07 Dec-06 Dec-05

Interest income 348,498 268,334 362,302 241,413 151,578 80,055

Interest expense (259,125) (201,977) (282,707) (187,952) (107,820) (57,117)

Net interest income 89,373 66,357 79,595 53,461 43,758 22,938

Other income 80,016 87,754 74,883 69,412 62,365 48,084

Total operating income 169,389 154,111 154,478 122,873 106,123 71,022

Operating expenses (118,478) (111,098) (110,375) (89,232) (80,566) (61,696)

Impairment allowances (31,007) (9,731) (6,153) (705) (1,174)

Profit before taxation 19,904 33,282 37,950 32,936 25,557 8,152

Income tax expense (5,996) (9,733) (12,148) (10,281) (8,311) (2,708)

Profit after tax 13,908 23,549 25,802 22,655 17,246 5,444

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Financial Performance - Balance sheet Loans and advances continue to grow despite retail and business

customers de-leveraging as the economy remains weak Strong retail funding ratio as retail deposits grow by over 10% Capital base strengthened by $150m PPS issuance

Dollars in millions Dec-10 Dec-09 %

growthAssetsLoans and advances 10,933 9,726 12.4%Wholesale & other assets 2,035 2,292 Total assets 12,969 12,018 7.9%

Financed by:LiabilitiesRetail deposits 7,621 6,891 10.6%Wholesale deposits 3,520 2,850 23.5%Securities issued & other liabilities 1,228 1,857 Total Liabilities 12,369 11,597 6.6%

Shareholder's equity * 600 421 42.8%Total liabilities and shareholder's equity 12,969 12,018

Ratio retail deposits to retail lending 70% 71%

* Includes $150m PPS issued in May 2010

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Financial Performance (key ratios)

* Dec 10 excludes $150m perpetual preference shares issued in May 2010

Ratios in percentage terms (annualised)     Dec-10 Dec-09

Profitability measuresNet interest inc./avg.total assets (annualised) 1.42% 1.19%

Net profit after tax/avg shareholder's funds (annualised) 8.29% 17.22%

Efficiency measuresOperating expenses/total income 69.9% 71.9%

Operating expenses/avg total assets 1.8% 2.0%

Average Balances ($000's) per accountLending - Fixed Mortgages 149 147

Deposits - Term Deposits 82 83

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Financial Performance – Capital Adequacy

Total Capital ratio under Basel II is 11.7% compared to RBNZ’s minimum regulatory capital ratio of 8%

Total Capital increased by $177.7m to $728.5m, a 32% increase from Dec 09.

Sufficient capital for immediate growth plans, aided by $150m perpetual preference share (PPS) issuance in May 2010

Strengthening of Tier 1 Capital ratio from 7.4% in Dec 09 to 9.5% in Dec 10 following $150m PPS share issuance

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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 $63.9m include all assets where interest charges have been suspended and a specific provision has been raised

Source: Dec 10 GDS for Kiwibank

Bank Latest KISPrevious

Quarter KIS     

Kiwibank 0.49% 0.31% ASB 0.75% 0.77% BNZ 1.11% 1.10% Westpac 1.34% 1.38% ANZ National 1.72% 1.59%     

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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 0.35% 0.17% ASB 0.37% 0.41% BNZ 0.74% 0.79% ANZ/National 1.20% 1.29% Westpac 1.37% 1.28%     

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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

Consider any investment opportunities in the market as they arise

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

Growing insurance business – Bancassurance

Asset financing – Kiwi Asset Finance

Diversifying and tapping into more offshore funding resources