Kiwibank, New Zealand’s fifth largest bank, is planning to issue covered bonds, according to Fitch, which assigned the bank a long term foreign currency rating of AA on 13 June, after the incorporation last month of what looks set to be the guarantor of a programme.

[First published 14/06/2012. Updated 19/06/12 to include Kiwibank spokesperson comment.]

Kiwi Covered Bond Trustee Limited was incorporated on 16 May, according to the New Zealand Companies Office.

Fitch noted Kiwibank’s covered bond plans when describing the evolution of the bank’s funding mix.

“Its strong loan growth has outpaced deposit growth over the past three years, making the bank more reliant on wholesale funding markets and, consequently, weakening its funding mix,” said Fitch. “In response, the bank has emphasised deposit growth to fund future loan growth, which should help stabilise its funding mix.

“In addition, the bank plans to use covered bonds to help lengthen its funding maturity profile.”

A spokesperson for Kiwibank told The Covered Bond Report that the bank is considering issuance.

“Covered bonds are a relatively new asset class for investors in this part of the world and are gaining a place in major banks’ diversification strategies for funding,” he said. “Kiwibank is no exception and must consider all the options available to it in both the retail and wholesale markets.

“Kiwibank’s current status is that it is considering this particular liability class but a programme has not yet been established. The bank is comfortably placed in terms of its funding and liquidity with cash to advance to satisfy our customer demand.”

Kiwibank’s senior unsecured debt, including deposits, is explicitly guaranteed by NZ Post, except where a payment obligation is expressly excluded, said Fitch. New Zealand Post Group (NZ Post) is government-owned and launched the wholly owned Kiwibank subsidiary in February 2002. Standard & Poor’s rates Kiwibank AA-, which is the same as its rating of NZ Post.

According to Fitch, Kiwibank is the fifth largest New Zealand bank by assets and at the end of 2011 its market share in deposits and loans was 5%, which the rating agency said was low relative to its larger Australian owned peers.

The four biggest New Zealand banks – ANZ National, ASB Bank, BNZ and Westpac NZ – have already issued contractually based covered bonds. A bill to introduce covered bond legislation in New Zealand is going through parliament.