18 Aug 2010

Kiwibank gets Government financial backstop

9:10 pm on 18 August 2010

The Government has backed Kiwibank's immediate growth plans with a financial guarantee worth several hundred million dollars.

But the bank's departing chief executive says the bank could come back to the Government for more money in the future.

Kiwibank first approached the Government for $100 million of new capital to support its future growth early last year.

Wednesday's announcement doesn't provide that, instead giving a financial backstop in the case of severe shock that can't be covered by the state-owned bank or its parent New Zealand Post.

However, Kiwibank chief executive Sam Knowles says it does underpin the bank's excellent credit rating.

The bank's AA- rating is crucial for its ability to borrow offshore to fund its expansion plans.

Mr Knowles says Kiwibank had not had to downgrade its growth plans in its talks with the Government over funding.

It is currently adding 300 to 400 new customers a day and plans to do more business lending.

Mr Knowles says a major increase in unemployment could lead to a drop in house prices, which would reduce the value of the bank's assets, and in those circumstances the standby capital would allow the bank to maintain its credit rating.