Westpac reports higher annual profit, but bad debts double

Westpac has reported a 6% increase in net profit after tax to NZ$484 million for the year to September 30 as it restrained costs and continued to grow farm lending, which offset a doubling of loan loss provisions in mortgage and other lending as the economy tipped into recession. Core earnings before tax and impairment charges rose 17% to NZ$883 million. "I am pleased with the way the bank has responded to economic conditions by focusing on fundamentals such as expense and margin management, but at the same time being willing to innovate," Acting CEO Bruce McLachlan said in a statement. "We continued to grow our customer base through the year, with particular success being the performances of the Westpac Debitplus Visa Card, the Cash Plus Trust (Cash PIE) and the Westpac Kiwisaver Scheme," he said. Business banking lending volumes rose 15%, driven in large part by farm lending. Consumer lending rose up 7% and was dragged lower in the second half by slower mortgage growth. "Disciplined management saw expenses up just 2% as wage increases were offset by benefits from supplier re-negotiations in technology, print cost savings and call centre process improvements. As a result Westpac New Zealand improved its cost to income ratio 330 basis points to 44.2%." Westpac said impairment charges for bad debts were NZ$170 million for the year, more than double NZ$81m reported the previous year. The impairment charges were driven by higher individual provisions across business lending, combined with some stress in the housing portfolio reflecting the tight economic conditions and high interest rates, McLachlan said. "Westpac New Zealand is closely managing its exposures and has directed more resources into its credit team. It is clear that by acting quickly at signs of payment stress we can achieve outcomes that are better for both our customers and our shareholders," he said, adding impairment charges were likely to remain elevated through the economic downturn. "Westpac New Zealand's capital position is robust, significantly exceeding the Reserve Bank of New Zealand's requirements. We have substantial holdings of liquid securities and undrawn funding lines at our disposal," he said. Westpac completed a NZ5.0 billion Residential Mortgage Backed Security facility last week that is eligible for repurchase agreements with the Reserve Bank of New Zealand that would allow Westpac to borrow short term from the bank. Full details of the Westpac group and NZ result is available here.