By Gareth Vaughan
Westpac New Zealand's annual cash earnings rose 13% to a record high as impairment charges on loans tumbled 78%
Cash earnings at Westpac NZ for the year to September 30 rose $96 million, or 13%, to $864 million from $768 million in the year to September 2013, parent Westpac Banking Corporation says.
The result was boosted by a $91 million, or 78%, drop in impairment charges to just $26 million. The big drop was attributed to improved asset quality, lower mortgage and other consumer lending delinquencies, plus run-off and management of stressed business loans. However, impairment charges in the six months to September 30, the second half of the bank's financial year, rose to $22 million from just $4 million in the first half year, - the six months to March 31, driven by higher impairments on business loans. Second half cash earnings were flat versus the first half at $432 million.
"(Annual) loan growth increased 5% including a 6% increase in mortgages, achieving 1.2x system, with deposits up 6% helping to maintain Westpac NZ's peer leading deposit to loan ratio of 76.5%. Partially offsetting this growth has been lower margins from strong competition and a customer preference for fixed rate mortgages," the Westpac group says.
Total customer deposits increased $2.8 billion to $49.4 billion, and net loans grew by $3 billion to $64.6 billion. Total assets were up $4.5 billion, or 7%, to $73.7 billion.
Westpac NZ's annual net interest margin fell 6 basis points to 2.27% from 2.33% the previous year. For the six months to September 30 it dropped 1 basis point to 2.27% versus 2.28% in the six months to March 31.One factor in the weaker margins was the transfer of treasury assets to Westpac NZ from the Westpac group in the second half.
The bank's annual expense to income ratio fell 70 basis points to 41%, and in the second-half year it dropped 58 basis points to 40.7%. Westpac NZ's 2014 return on total equity in Australian dollar terms was put at 21.1%, up 190 basis points from 19.2% in 2013. The Westpac group return on equity was 21.2% versus 20.9% last year.
Annual operating income up 2%, operating expenses up 0.50%
Annual net interest income rose $38 million, or 2%, to $1.592 billion. Net operating income rose $44 million, or 2%, to $2.071 billion.Operating expenses rose $4 million to $849 million.
In the second half-year net operating income rose 3% and operating expenses were up 1%.
Total stressed assets to total committed lending dropped to 1.59% in the six months to September 30 from 1.85% in the six months to March 31. Westpac NZ is now a KiwiSaver default provider and said funds under management rose 25% in the September year to $5.5 billion.
The Westpac group, meanwhile, posted 8% growth in annual cash earnings to A$7.628 billion. The group's total annual dividends rose 5% to A$1.82 per share.
Big 4 post combined $443 million rise in annual cash profit
Westpac NZ is the last of the big four Australian owned banks to post annual results this year. Combined the four, ANZ, ASB, BNZ and Westpac, recorded a $443 million, or 12%, rise in annual cash earnings to $4.127 billion versus $3.384 billion last year. Their annual cash profit last year rose a combined 10%.
Unlike its three rivals, Westpac NZ's results don't include a figure for net profit after tax. Cash profit tends to be the big banks' preferred measure of financial performance. That's because it excludes items introducing volatility and one-off distortions unrelated to ongoing financial performance.
As BNZ put it; "Cash earnings is based on statutory net profit which is adjusted to exclude fair value movements, hedging gains/losses and the disposal of subsidiaries. These items are excluded from cash earnings as they introduce volatility and/or distortions and are shown in the cash earnings to net profit reconciliation included on the final page. Cash earnings is calculated in accordance with Group (parent National Australia Bank) policy."
However, the way banks report cash profit has come under fire from some banking analysts.
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