Kiwibank buys 51% of New Zealand Home Loans

By Jenny Ruth

Wednesday 22nd March 2006

Kiwibank is to buy a 51% stake in New Zealand Home Loans for about $8 million.

The move will boost Kiwibank's share of the mortgage market because it will take over funding NZHL's prime mortgages. That will deal a blow to Sovereign which previously provided the bulk of NZHL's funding.

The 10-year old NZHL currently has about $1.7 billion in mortgages funded by Sovereign. NZHL founder and chief executive John Erkkila, who will continue to run the company, says that will be close to $2 billion by the time Kiwibank takes over funding new loans from August 1.

Loans already written with Sovereign will remain in place and, as with the Sovereign-funded loans, all the Kiwibank-funded loans will be written under NZHL's brand.

Erkkila says it will probably take until the end of the year for all new loans to be Kiwibank-funded as new systems are rolled out across NZHL's 28 franchised offices.

At the end of December, Kiwibank's mortgage book had grown to $2.09 billion, giving it 1.8% of mortgages funded by registered banks.

Erkkila says on a personal basis, ending his company's relationship with Sovereign is "incredibly sad. They've been extremely supportive of us over the years."

He says a prime motivation for forming a relationship with Kiwibank is because it's a New Zealand-owned bank.

"A third of our balance of payments deficit pays the dividends to offshore banks and currently New Zealanders spend 113% of their incomes. Put those two things together and the question is, isn't it about time that New Zealanders were able to bank with a New Zealand bank where the profits remain in New Zealand?" Erkkila says.

He denies that money was a prime motivation. "We would've got more dough from other players in the market place."

He says his prime objective in business is to try to help New Zealanders get out of debt. "Unfortunately, we have to lend them money to do it." Rather than simply providing home loans, NZHL provides its customers with complete financial packages.

The reason Kiwibank decided to buy a stake in NZHL, rather than just provide funding as Sovereign, was because "the investment required to achieve the things we're wanting to achieve means they're probably going to have to pick it up in their balance sheet," Erkkila says.

Kiwibank spokesman Bruce Thompson says Kiwibank was "looking for a strategic partnership where we will grow their business as well as our business and where we would have a seat on their board."

Sovereign says it will continue to support NZHL and its existing customers.

"While Kiwibank's equity investment will clearly see a reduction in the level of new loan volume NZHL places with Sovereign, we are in a strong business growth phase. We anticipate our volumes and market share will continue to grow across a diverse range of advisers," Sovereign said in a statement.

One part of NZHL's relationship with Sovereign won't be affected: it will continue to place insurance with Sovereign.

NZHL has also had a relationship with Bluestone since September last year under which it provides funding for non-conforming loans. Erkkila says that NZHL has about $20 million in loans under this facility and that that relationship will continue.

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