5 May 2010

Westpac gaining momentum

Westpac New Zealand Banking* today reported an improved Net Profit After Tax (NPAT) of $125 million for the half year to 31 March 2010.

While NPAT is up $91 million on the previous six months, it is down 38% or $77 million on the March 2009 half year with sound loan growth offset by higher funding costs, lower fee income and increased impairment charges.

“Westpac has invested significantly in the capability of our frontline people which has been a key contributor to loan growth and provided encouraging confirmation that our customer-focused strategy is on track,” Westpac CEO George Frazis said.

“That we have managed to achieve this strong result, while containing our expense growth to just 2%, is a tribute to the focus and dedication of our staff.”

Westpac’s business is gaining momentum, amid a recovery in the New Zealand economy. The bank grew market share over the past six months with gross loan volumes in both the home lending and business sectors, up 4% and up 3% respectively, representing an additional $1.2 billion of lending supporting people into homes, and an additional $0.5 billion helping businesses to grow.

“The higher cost of deposits and wholesale funding have eroded Westpac’s net interest margin, which contracted 15 basis points to 2.07%,” Mr Frazis added. “We have also lowered or removed bank fees for overdrawn accounts, missed payments and cheque dishonours for retail and business customers. That has seen fee revenue fall from $31 million to just $5 million in the past six months alone.”

While positively received by Westpac’s customers, Mr Frazis said the bank fee reductions, together with higher funding costs, had seen total revenue decline by $82 million on the prior corresponding period.

“Our reduction in bank fees has delivered significant benefits to our customers who have also enjoyed attractive high interest rates on deposit accounts. The high deposit account rates are good for the health of the economy as they encourage more household and business savings,” Mr Frazis added.

Mr Frazis said impairment charges remained elevated from where they were 12 months ago but are down 46% or $180 million from second half 2009, reflecting the absence of large, single name impairments incurred in the second half of 2009 and an improvement in credit quality driven by general improvement in economic conditions.

“The overall improvement in impairments reflects the ongoing recovery of the New Zealand economy. Additionally Westpac has taken the prudent step to improve our provisioning cover by adding $60 million to our collective provision,” he said. “Consumer delinquencies in the mortgage sector have also improved and stabilised but the lag effects of the recession are expected to continue for some time.”

Mr Frazis said Westpac’s strategy to delight customers is on track and delivering results. The main components of that strategy include:

  • Having more bankers in more places;
  • Having more decisions made locally, closer to our customers;
  • Ensuring we have the best bankers to serve our customers and provide quality advice through increased training and up-skilling;
  • Introducing the latest innovative technology in our branches and ATMs; and
  • Supporting our communities to prosper.

“We’re focused on simplifying our branch operating model to improve customer service and interaction with more decisions being made locally, closer to our customers,” Mr Frazis said.

“In the past twelve months we’ve opened five new community branches utilising market leading technology providing 24/7 banking. We have appointed an additional 100 local business bankers, 20 agri-business bankers, 20 SME business bankers and 10 transactional bankers. This is part of our strategy of having more bankers in more places and being open for business where our customers need us.

“Over the next six months we will focus on increasing our presence in the Auckland market and broadening our SME base across the country to ensure we can continue to support our customers’ banking requirements and to leverage growth opportunities as the New Zealand economy recovers,” Mr Frazis concluded.

*Westpac New Zealand Banking is the retail bank, business bank, BT New Zealand, Westpac Life NZ and support operations. It does not include Treasury, other funding vehicles or Westpac Institutional Bank NZ (the branch).


1 Loans: On a gross basis (not taking into account provisions) from Sep-09 to Mar -10:

  • mortgages grew at 3.6% relative to a market growth of 1.5%; and
  • business lending grew at 3.1% relative to a market that contracted by 3.5%.

2. Business loans for March 2010 exclude a $0.2 billion client transferred to the Institutional Bank (WIB)

3. The March 2009 (1H09) ASX and results statement was released on the 6th May 2009 and was correct as at the date of release. Subsequent to this release new information was received that impacted the quoted provisions. The impairment charge disclosed in the WNZL General Disclosure Statement, released on the 26th June 2009, was adjusted to reflect this change. On the respective dates of release both documents included the correct disclosures.