Westpac continues momentum delivering on its customer strategy
Key financial highlights (comparisons are with prior year)
- Cash earnings $322 million (up 36%)
- Core earnings $804m (down 11%)
- Impairment charges down 39%
- Operating Expenses $746m (up 0.7%)
Full Year Performance for 2010 is strong
Westpac New Zealand Banking (“Westpac”) is continuing to grow market share in a slowly recovering economic environment over the year ended 30 September 2010.
Chief Executive George Frazis said Westpac produced a solid result. Improvements made to business fundamentals produced strong cash earnings for the year. Effective expense management and reduced impairments were both key drivers of the positive cash earning result. The focus on productivity initiatives has supported sound expense management. Increased credit management capability has contributed to the lower impairments. The reduction in exception fees on credit cards, savings and transaction accounts for personal and business customers, reduced net operating income by $57 million.
The first half of the year saw the business develop strong momentum. This continued into the second half. During the second half, cash earnings grew 58%, core earnings grew 10% and impairments improved 33%. This was a pleasing result given the subdued growth in market volumes for the sector over the second half.
Mr Frazis said Westpac had been focused on delivering service excellence to our customers in their local community. This has involved expanding the branch network, investing in the capability of frontline bankers and ensuring local Business and Retail customers are supported in their community as the economy takes tentative steps toward recovery.
“Westpac has supported our retail and business customers by remaining open for business throughout a tough and challenging period. Our strong market growth is a reflection of that support, and Westpac will maintain this trajectory as the economy recovers further,” Mr Frazis said.
Growth in market share continues
Westpac grew share and outperformed the market in all major product categories. Business lending was a particular highlight over the year. Westpac grew business lending by 2.8% while the system contracted 4.6%. In addition to good growth in business lending, Westpac has supported the agricultural sector growing lending at 7.0% while total market growth was 1.8%. Performance in home lending has been strong and with a good risk profile. Westpac grew 5.6% in a market that grew just 2.5%.
The market for deposits has been highly competitive throughout the year and this has benefited depositors. Westpac grew retail deposits at 6.8% while the system grew at 4.5%.
Credit risk stablised and well managed
Risk governance has been strengthened over the year. Localised risk functions have been established across the business, with local credit officers operational in a number of centres providing greater levels of support to our bankers and customers. Westpac remains well provisioned with total provisioning to gross loans of 1.5%, up from 1.2% at September 2009.
Westpac has more bankers in more places
Westpac expanded its network by opening eight new community branches over the year. The community branches generally have a smaller footprint than traditional branches and are designed to enhance the customer service experience, including the latest self service technology. They enable fast and convenient 24 hours a day, 7 days a week service for personal and business customers.
Mr Frazis said that we have received positive feedback from customers on our new community branches. Small businesses are able to deposit cheques, deposit coins and extract coins 24 hours a day, 7 days a week, enabling them to do their banking when it is convenient for their business.
In addition, Westpac continues an extensive training programme for frontline bankers. The objective is to increase the amount of quality face-to-face time with customers, be quicker to respond to customer demands and have the capability to tailor the right solution for the customers.
The improvement in market share and customer satisfaction, assessed through net promoter scores, showed the investment is making a difference. Across the bank, the number of home loans processed within an hour has increased by 60%. The median time for approval has dropped from 20.3 hours to 1.7 hours. Nearly 80% of home loan decisions are now made in branch with the support of sophisticated decision tools.
Process improvements that increase efficiency enable our people to have better quality discussions with customers,” Mr Frazis said. “This allows us to provide a better service experience.
Commitment to our customers, our people and the community
Following the Christchurch earthquake, Westpac services were quickly operational thanks to the commitment of our people from across the country. Customers were supported through additional lines of credit, mortgage repayment holidays, and the waiving of Term Deposit break fees to ensure quick and easy access to funds for those who needed it.
Mr Frazis said a crisis such as the Christchurch earthquake not only tests individuals but also businesses.
“Thanks to the efforts of our people the bank was able to support its customers and impacted employees in a time of dire need,” Mr Frazis said. “I was proud to see how the business reacted and how our Westpac team pulled together.”
In May this year, Westpac held its sixth annual ’Chopper Appeal‘ for local Westpac Rescue Helicopter Trusts. This year New Zealanders helped raise over $1.45 million. This was the most successful appeal so far. This highlights the value local communities place on the Westpac Rescue Helicopters and the role they play in enabling New Zealanders to live an outdoor active lifestyle with peace of mind.
This was the third year in Westpac’s partnership with the Care for Our Coast programme run by the Sir Peter Blake Trust. The target is to remove one million pieces of rubbish from New Zealand beaches and coastlines by 2012. Three hundred and forty beach clean ups were completed this year, removing 285,000 pieces of rubbish.
Economic Outlook is for continued recovery at a slow pace
Westpac will continue to play its part in the recovery of the New Zealand economy.
“The economy is on the road to recovery, but the recovery will be at a slower pace than initially thought. A key driver of the recovery is exports, which is good for the nation, but will take time to flow through the broader economy. This means domestic businesses and households still face a tough year ahead. New Zealanders have paid down debt and are now in a stronger position as a result,” Mr Frazis said. “Westpac has a well managed and strong funding position that will enable it to continue to support New Zealanders through the recovery phase.”
The Westpac New Zealand Ltd GDS will be available in the last week of November 2010.
Westpac New Zealand Banking Results
% Mov't % Mov't
NZ$m Half Year
Sept 10 Half Year March 10 Mar 10-Sept 10 Full Year
Sept 10 Full Year
Sept 09Sept 09-Sept 10
Net interest income 617 585 5 1,202 1,235(3)
Non-interest income 179 169 6 348 407(14)
Net operating income 796 754 6 1,550 1,642(6)
Operating expenses (375) (371) (1) (746) (741)(0.7)
Core earnings 421 383 10 804 901(11)
Impairment charges (139) (208) 33 (347) (572)39
Operating profit before tax 282 175 61 457 32939
Tax and non-controlling interests (85) (50) (70) (135) (93)(45)
Cash earnings 197 125 58 322 23636
Return on equity 13.0% 8.6% 440bps 10.8% 8.5%230bps
Expense to income ratio 47.1% 49.2% (210)bps 48.1% 45.1%300bps
$bn $bn $bn $bn
Term deposits 17.8 17.0 5 17.8 16.0 11
Other 12.7 13.0 (2) 12.7 12.8 (1)
Total deposits 30.5 30.0 2 30.5 28.8 6
Mortgages 33.9 33.2 2 33.9 32.0 6
Business 14.3 14.2 1 14.3 14.0 2
Other 1.6 1.6 0 1.6 1.7 (6)
Total net loans 49.8 49.0 2 49.8 47.7 4
Total assets 51.2 50.5 1 51.2 49.0 4
Funds under management 2.2 2.1 5 2.2 2.1 5
New community branches: Huapai, Epsom, St Johns, Highbrook, Mangere, Highland Park, Palmerston North (The Plaza), Hamilton (The Junction)