Southland giant spreads northward

By Mark Peart

Friday 25th June 2004

When is a building society which offers banking products not a registered bank?

When it's Invercargill-based SBS (Southland Building Society).

SBS, now in its 135th year of trading, is firmly established in the South Island financial services market but has its sights firmly set on being a nationwide player within two years.

SBS chief executive Ross Smith said the society is enjoying record growth, fuelled in part by a buoyant housing and agribusiness property market.

Last year the society's assets grew $170million to $1.5 billion, excluding $97million held by its funds management subsidiary.

"We see ourselves as a real retail competitor in the banking environment," Smith said.

"Our strategy up until now has been to get a substantial footprint in the South Island and once we have done that, we will step up to a national distribution network."

SBS, which rebuffed a takeover offer by Westpac in 1991, has a fully-fledged branch in Hamilton and a supporting satellite presence in Tauranga.

Smith said SBS "dipped a toe in the water" with the Hamilton branch, but was focused on making the South Island network as strong as possible.

It now has three branches in Christchurch, with at least one branch, the flagship New Regent Street branch earmarked for expansion. The four-year-old Nelson branch also had to move to larger premises in January.

The Tauranga and Blenheim satellite offices may be upgraded to branch status next year when a new branch in Timaru is also set to be opened.

Smith said business generated by the buoyant Central Otago economy meant the Queenstown branch was "going through the roof" with plans to support Central Otago with a satellite office in Cromwell.

SBS has progressively introduced banking products, including chequebooks, debit cards and telephone banking during the past four years. It also wants to offer internet banking.

Because it is not a registered bank, a recent change in the Reserve Bank Act prevents it from using the word bank or banking in its advertising and promotion.

The result is that SBS markets itself as "proud to be a building society, not a registered bank," said Smith.

"The irony of all that is that under the Building Societies Act we are specifically allowed to 'conduct the business of banking.' It makes it very difficult for us to comply with the (Reserve Bank) act without telling people what we do. If we do tell people what we do, we have to qualify it by saying we're not a registered bank."

SBS has two subsidiaries, a consumer finance company called Finance Now and funds manager Funds Administration of NZ (FANZ). SBS recently spun off its life insurance business, Southsure, into an autonomous company.

Finance Now has more than $60 million on its loan book generated through a nationwide network of retailers and through a personal loans division based in Invercargill.

"Our long-term strategy is to establish ourselves in the banking sector and have complementary businesses around that."

"If the structure of the business changes, and I'm not saying it will and I'm not saying it won't, it will be driven by the business need."

Smith said the Reserve Bank Act revamp was the kind of legislative change that made it "more and more difficult to compete."

"If we change the structure, one thing I guarantee we will not change is the philosophy. We are a mutual, we will not be driven by the demands of, in the main, foreign-owned shareholders. We will remain New Zealand-owned and we will certainly maintain a mutual philosophy."

A KPMG survey of savings institutions late last year found the sector continues to be dominated by SBS, PSIS and Southern Cross, who between them account for 80% of total assets.

Smith said it was an advantage SBS stakeholders were not shareholders and weren't constantly seeking capital gains or dividends.

"The only thing we see in banks is a drive for efficiency, which in essence means a reduction in service because that's the only way they can achieve it if they merge with another bank and go through it (rationalisation) all over again."

"We are not trying to maximise the profit necessarily to match what might be the benchmark in the industry; what we are trying to do is give a good deal to our members but make sure we retain sufficient funds that we are viable going forward."

Smith said that within two years SBS, which employs 200 staff, planned to be more active in the North Island. "We're not going to have a branch on every corner but we hope to be registered in the major cities and towns."

The society's annual result released this week shows members' equity has increased 14.6% to $96 million, while the pre-tax operating surplus is up 11.5% to a record $18.3 million.

Smith said strong growth throughout the economy had generated increased demand for project finance, fuelling the "greatest housing and property boom we have ever experienced."

SBS decided on Tuesday to leave its residential floating mortgage rate at 7.6% despite recent increases in wholesale rates and increases already being implemented by several banks.

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