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Kiwibank books a $90 million impairment on software

Rob O'Neill | Sept. 5, 2017
Large SAP project - dubbed CoreMod - facing delays, cost overruns and now a "strategic review".

In July, Reseller News reported a new disclosure in a bank report revealing the core banking system replacement was falling behind schedule and costs were mounting.

The bank, which is mostly owned by NZ Post, revealed the delays in its statutory quarterly disclosure (pdf) statement to the end of March 2017.

"Kiwibank is in the process of modernising its core banking system," the report said. "This is a significant and complex change programme which is taking longer than anticipated and will involve a higher level of investment and operating risk over the next 2-3 years, both of which are being actively managed."

The previous disclosure, for the quarter to the end of December, was similarly worded but did not mention  delays to the project, dubbed CoreMod.

Brock announced two weeks ago he will be resigning after seven years leading the company. He will leave at the end of the year.

The only cost figure ever attached to the project was a minimum of $100 million but it appears the costs may be signicantly more. Kiwibank did not overtly disclose any more information about the overall costs of the CoreMod system today, but suggested it could be worked out from its next quarterly disclosure statement.

A Kiwibank spokesman said in July the bank was cautious about providing detailed information about the CoreMod project. 

"It is continuing to progress and our CEO will provide an update in general terms when we release our financial result in late August. We consider the progress of the project as commercially sensitive."

Last February, Interest.co.nz reported Kiwibank's expenses were rising as it pushed on with the upgrade. 

Kiwibank's chief executive Paul Brock said at the time the project would cost "more than" $100 million but progress was "broadly in line" with budget.

According to a briefing on Kiwibank's 2016 annual results, released in August 2016, the bank was moving on to phase two of the project, migrating savings and transaction accounts to the new SAP system. Phase one, implementing the SAP payments engine, was completed in August 2015.

Brock told Interest.co.nz phase three which would include moving across lending systems and customer records, was to follow.

At the time of the interview, the build of phase two, which included the migration of most savings and transaction accounts, was complete and in testing with data migration scheduled for "later in 2017".

Brock said phase two was "costing a little bit more" than planned and was very complex.

"I think at the end of the day it's a multi-year programme, they're pretty complex, they always seem to take longer and be more complex than what you expected," he said. "So how you establish budgets around these things is an ongoing process, but we're broadly in line with what we've expected for the first phase.

 

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