4 May 2011

Westpac continues momentum in subdued environment

Westpac New Zealand has reported cash earnings (Net Profit After Tax) of $210 million for the half year to March 31 2011, a lift of 68% on the corresponding period last year.

Driving the strong performance was a 13% rise in core earnings (underlying profit) to $433m due to net operating income growth of 9% and with good cost management through productivity.

Net operating income growth was a result of improved margins and lending growth above system. Impairments improved by 34%.

Westpac New Zealand Chief Executive Officer, George Frazis, said the strong momentum Westpac continues to achieve in a subdued environment is further evidence the bank’s customer focused strategy introduced over the last 18 months is delivering good results.

“The simplifying of processes to make things quicker and easier for our customers and the training of frontline staff, so local people are making local decisions is resonating strongly with customers and the market,” Mr Frazis said.

“Thanks to the on-going investment in our front-line, not only do we have more localised bankers in more places, we also have better bankers making better decisions. This is backed by award winning ATM technology and innovations such as our real estate and impulse saver iPhone applications.

“This is a strong performance given the subdued market and the impact of the September and February earthquakes in Christchurch. Home lending has grown ahead of market, margins have improved and deposits have also increased to support our growth.”

Lending rose 2% over the same period in 2010 mainly due to a 3% rise in mortgage Lending, while deposits increased by 5%, or $1.6 billion, more than fully supporting loan growth. Westpac New Zealand has a customer deposit to loan ratio of 63.5%. Margins improved during the period to 2.29%.

Operating expenses were 4% higher than a year ago due to investment in staff training, the hiring of more bankers and the opening of new branches.

There was continued improvement in the quality of the business loan book as stressed assets fell for the third consecutive half. Impairment charges were down to $137 million, a drop of 34% on the corresponding period in 2010.

With the rebuilding process in Christchurch still not clear, the overall financial impact of the earthquakes will continue to be refined. To date, pre-tax impairment charges in the form of an overlay and specific provisions relating to the two quakes are $66m ($10m from September 2010 in addition to the $56m in the current half).

Westpac has contributed direct financial support to the relief effort through the Westpac Canterbury Care Fund and additional resources to support customers and staff.

Westpac has 23 branches in Christchurch with 17 currently open for business. Short term needs for customers were met with the quick reopening of premises thanks to the efforts of volunteer staff from around the region. Mobile branches were deployed to suburban areas where road damage made travel difficult while the establishment of the Westpac Business Hub will provide longer term assistance to help any impacted business get back on its feet.

Westpac is seeing signs of economic recovery in New Zealand although the subdued activity is expected until late 2011. Although global uncertainty remains, the growth trajectory of our major trading partners in Asia and Australia appears to be sustainable. Consumer spending is rising and nationwide house sales are on the up despite the earthquake disruption.

Westpac is also looking at what it can do to help restore confidence in the New Zealand economy and pull the recovery forward. Westpac’s Grow New Zealand initiative is underway with a series of CEO hosted forums across the country later this month to hear first hand what is required by business and communities to invest for growth.

“New Zealand needs to move from caution to confidence to get the economy moving again,” Mr Frazis said. “We are looking to incorporate what we learn from the forums into other work Westpac is already doing to create a practical programme. We want to play our part in getting the economy moving again and to grow New Zealand.”

1 Westpac New Zealand (“Westpac”) is the New Zealand reporting entity of The Westpac Group as described in The Westpac Group 2011 Half Year Results. Westpac New Zealand primarily comprises Retail Bank, Business Bank, Wealth and Insurance. It excludes Institutional Bank.

Note: The Westpac New Zealand Limited General Disclosure Statement (GDS) will be available by the end of May 2011.