Westpac annual cash earnings jump 22% to record high of NZ$707 mln

Westpac New Zealand's annual profit has surged, with its net interest margin up strongly and its cost to income ratio down, as operating income rose 7% and expenses fell rose a slower 3%.

Westpac NZ's cash earnings for the year to September rose NZ$129 million, or 22%, to NZ$707 million from NZ$578 million, Australian parent Westpac Banking Corporation says.

Last year's figure appears to have been restated given a year ago Westpac NZ reported annual cash earnings of NZ$454 million. This comes after Westpac Banking Corporation transferred more than NZ$6 billion worth of assets and over NZ$5 billion of liabilities to Westpac NZ last October to bring the bank in line with Reserve Bank of New Zealand bank registration rules. This means the New Zealand bank is now operating from a significantly bigger base.

Net operating income rose NZ$127 million, or 7%, to NZ$2.012 billion after net interest income rose 6% and non-interest income rose 9%. Operating expenses increased NZ$22 million, or just 3%, to NZ$841 million.  Impairment charges on loans fell NZ$50 million, or 21% to NZ$191 million.

Meanwhile, at 11%, annual deposit growth easily outstripped total net loan growth of just 3%. And Westpac NZ's expense to income ratio fell 160 basis points to 41.8% and its net interest margin rose 8 basis points to 2.72%.

"Our strong deposit growth of 11% has fully funded our loan growth of 3% and improved our deposit to loan ratio from 66% to 71%," Westpac NZ CEO Peter Clare said.

"This growth has been achieved through an increased deposit focus and ongoing innovation. This year we launched a 32 Day deposit for Institutional and Corporate customers that provides a better return for customers and provides us with a higher quality deposit base."

Agriculture lending growth 'ahead of system', new rural staff coming

The bank grew mortgages by 3% and business lending by 4%.

"Agriculture was a strong performer with growth ahead of system delivering nearly half a percent of improvement in market share. We remain committed to supporting agriculture in New Zealand and our on-going investment into the sector will see 20 new frontline agri-bankers employed in the next 12 months," said Clare.

Westpac's impaired assets to total loans rose slightly to 1.13% in the second half-year from 1.12% in the first half-year.

Clare talked up Westpac's online initiatives including its homeclub.co.nz house buying tool, push to get businesses websites through getonline.co.nz, and its budget planner mobile app. He said more online and mobile innovations were planned in the 2013 financial year.

“We have seen a six-fold increase in the uptake of mobile banking over the last half of the year and there is now in excess of 1.2 million log ons and transactions via mobile per month. It is clearly a channel customers want to use and we will continue to listen to them and meet their needs,” Clare said.

Over the second half-year, Westpac said its net interest margin was up 2 basis points to 2.73% thanks to improved spreads, especially from fixed-term mortgages and the "repricing" of business lending. However, this was partially offset by tighter deposit spreads with competition increasing. Total lending rose 1.2%, or by NZ$1.2 billion in the second half, with mortgages up NZ$500 million, or 1%, shy of an NZ$800 million, or 4%, rise in business, including agricultural, lending. Deposits increased 7%, or by NZ$2.6 billion.

Second-half cash profit rose NZ$15 million, or 4%, to NZ$361 million.

"Looking ahead, global uncertainty continues to impact the decisions of New Zealanders," Clare said. "Consumers have continued deleveraging as have many businesses who remain focused on strengthening their balance sheets rather than investing now for growth. The New Zealand economy is well placed for growth compared to many others around the world. The key now is moving from caution to confidence and investing for future growth."

Westpac said the trend over the last couple of years of mortgage customers moving to floating interest rates from fixed-term ones started to reverse with the proportion on floating rates falling to 48% from 52% through the second half of the year.

Parent Westpac Banking Corporation reported a 5% rise in annual cash earnings to A$6.598 billion, which was largely as expected, although net profit after tax fell 15% to A$5.970 billion, which the bank mainly attributed to this year having no tax benefit from the 2008 St George acquisition. The group will pay a final dividend of A84 cents per share, giving total dividends for the year of A$1.66 per share, a rise of 6%.

See Westpac Banking Corporation's full results announcement here and its investor presentation here.

(Updates add detail, comments from Peter Clare).