Kiwibank's IT work-in-progress proves costly

Kiwibank’s profit has tumbled more than 50%, largely due to an impairment charge relating to an IT project that may fail to keep up with the pace of customer behaviour change.

It reported a net profit for the year to June 30 of $58 million. That included an after-tax $65m impairment charge for work on CoreMod – work that was intended to modernise Kiwibank’s core banking system.

Chief executive Paul Brock said the value of the work so far was being assessed because the way customers interacted with the bank was changing “almost as rapidly as the technology required to support their increasing preference for digital banking experiences”.

Asked whether that meant that CoreMod could be out-of-date before it was complete, a spokesman said the bank had paused to assess where to from here.

Brock said while this review was conducted, a decision has been made to impair the value of the work in progress, which currently sits on the balance sheet as an intangible asset.

The assets associated with the successful migration of batch payments to a SAP solution were unaffected. There was no impact on the current core banking system.

Brock said the decision to impair was prudent and reflected the challenges and changing nature of banking since Kiwibank first contemplated the upgrade four years ago. 

“We need to ensure that our broader IT infrastructure (not just the core system) doesn’t limit delivery of our long-term strategy.”

In the past year more than 40% of sales were completed through a digital channel. More than 57% of customers digitally connect with Kiwibank.

The Kiwibank group grew lending to customers by 6.8%, to $17.8b over the year and customer deposits 8.1% to $16b.

Brock said the past year was a remarkable one for the group, with New Zealand Post divesting 47% of its shareholding to ACC and the New Zealand Super Fund last October, as well as issues with the Reserve Bank relating to capital.

Brock said profitability across the group was commensurate with the operating environment, levels of investment and work underway to deliver on our ambitions.

“We’re positioning ourselves to take full advantage of the opportunities in front of us, predominantly with a digital focus – we’re committed to our customers and long-term value creation for our shareholders.”

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