02 November 2015

Westpac New Zealand maintains momentum and continues investment

Westpac New Zealand has confirmed Cash earnings of $916 million for the year ended 30 September 2015, a 6% increase on the prior corresponding year.

The strong results maintained momentum and market share in target areas in an intensely competitive market with 7% growth in Core earnings driven by an 8% lift in net interest income. This was partly offset by $47 million in impairments, up $21m off a low $26 million in FY14 (which included a high level of write-backs and recoveries).

Westpac New Zealand Chief Executive, David McLean, said the result reflected the strategy of targeted growth and disciplined margin management while continuing to invest in delivering leading customer service.

“We continue to build a strong and sustainable business focused on quality lending while delivering and developing new and easier ways for customers to do their banking in a rapidly evolving environment,” Mr McLean said.

“In a very competitive market we achieved targeted lending and deposit growth, improving margins and maintaining a peer leading deposit to loan ratio of 75.2%. At the same time we continued to invest to ensure we become one of the world’s great service companies.”

Both Home and Business lending lifted on FY14. Home lending increased 6% amid intense competition and an on-going customer preference for fixed rate loans. The quality of Business lending continued to improve along with growth of 9%, ahead of system,5 with Agri performing well, up 12%.

The quality of the Agri portfolio is a reflection of good credit management and stage of cycle. Westpac New Zealand is working proactively to support Agri customers through difficult times and Mr McLean urged farmers to talk with their bank early and often.

"This is a difficult part of the cycle for farmers and we are committed to working with our customers to get through it as best they can," Mr McLean said.

Deposits rose 5%, in line with system in targeted call deposits. Transactional and at-call accounts were up 15%, primarily in online deposits.

Net interest margin (NIM) improved four basis points to 2.31% compared to FY14. This improvement was driven by reduced wholesale funding costs, higher Treasury income and disciplined margin management. Deposit spreads improved due to active rate management and ongoing portfolio optimisation which more than offset reduced lending spreads which were impacted by continued market competition.

Funds under Management and Funds under Administration were both up 18% to $6.5 billion and $2.0 billion respectively, underpinned by continued growth in KiwiSaver where balances were up 24%. The Westpac KiwiSaver Scheme6 received Platinum status during 2015 for all elements of the scheme, the highest rating available from the SuperRatings Review. The number of Westpac New Zealand customers with a Wealth product increased 82bps to 28.2%.

As a result of developing the Air New Zealand Airpoints partnership Westpac New Zealand reshaped the credit card market. Over 57,000 new accounts were added, many of which were new to bank customers, increasing market share to 23.8%. Westpac also released the first Airpoints earning credit card for businesses and an Airpoints earning debit card. The opportunity now is to extend the number of Westpac services and products with these customers and deepen the relationship.

Westpac New Zealand was retained as the main banking provider to the Government and its 36 key agencies after a competitive tender process. The eight year contract extends Westpac New Zealand’s relationship with Government to more than 30 years.

Mr McLean said initiatives that will be rolled out as part of the Government offering, as well as those fast-tracked for the delivery of the Airpoints programme such as online onboarding and card pinning, will be used across other areas of the business to provide an industry leading service for New Zealanders.

“Investment in delivering world class service remains a sharp focus and we are committed to making it easier and faster for our customers to operate and to provide them with the functionality and tools to bank when and where they want to,” he added.

“The launch of our fully responsive Westpac One platform is an example of delivering customers enhanced functionality, a consistent experience and underlines our on-going investment in digital and self-serve channels.”

Since Westpac One was launched at the start of the year, 78% of customers have migrated to the platform and 56% choose to bank via mobile devices. Digital applications have increased as a result:

-  Cards, personal loans and home lending applications are up 51%
-  34% of all applications are now made online
-  84% of applications are being conditionally approved instantly online

As a result of launching Westpac One, Westpac New Zealand was named Best Online Bank in New Zealand by Canstar, shortly after being named the Best Retail Bank of the Year (NZ) at the Asian Banker Awards.

During FY15 the 152nd Smart ATM was installed and the fleet is now larger than the number of Smart ATMs of our three largest competitors combined. The number of deposit transactions going through the Smart ATMs is over a third of all deposits and over 34% of these are taken outside of branch hours.

Westpac is committed to having a positive impact on the communities in which we operate. In FY15, 35,904 New Zealanders experienced Westpac financial education through a mixture of community based workshops, online tutorials and digital resources. This was a 70% increase on the number of New Zealanders Westpac programmes reached in FY14.

The economic outlook for FY16 is softer, with growth expected to slow to around 2% due to lower dairy returns, the possibility of drought and a plateauing in post-earthquake reconstruction activities in Canterbury. However the high level of construction in Auckland is expected to continue as population growth continues at a high rate. House price inflation in Auckland may cool, partly due to the introduction of new capital requirements for property investors in Auckland and new tax rules around house sales. However, housing markets in other parts of New Zealand may get a boost from the lower interest rate environment and looser mortgage lending restrictions.