Westpac New Zealand has posted a 41% rise in annual cash earnings after a big drop in impairment charges as rise in income as net interest margins rose.
Westpac's cash earnings for the year to September 30 rose to NZ$454 million from NZ$322 million the previous year. The bank's net operating income rose 8% to NZ$1.668 billion outstripping a 5% rise in operating expenses to NZ$784 million. Australian parent Westpac Banking Corporation posted just a 7% rise in annual cash earnings to A$6.3 billion.
Impairment charges fell 32% to NZ$236 million.
Net interest margins, helped by customers switching to more lucrative floating, or variable, rate mortgages from fixed-term ones, rose 22 basis points across the year to 2.33% and 9 basis points in the second half-year to 2.38%.
Nearly 60% of industry wide home loans by value are now on floating rates compared with 87% on fixed-term rates just three years ago. Banks tend to do better out of floating, or variable, mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between swap rates and fixed rate mortgages. See more on this here.
The strong jump in profit came despite just a 3% rise in net loans to NZ$51.2 billion and 3% rise in total assets to NZ$52.6 billion.
BNZ last week reported a NZ$69 million, or 11.5%, rise in annual net profit after tax to NZ$671 million and an NZ$88 million, or 17%, rise in cash earnings to NZ$612 million. In August ASB, which has a June balance date, posted record annual net profit of NZ$568 million and a 42% rise in cash earnings to NZ$504 million. ANZ reports its annual results tomorrow.
Meanwhile, Westpac said its term deposits rose 8% to NZ$19.2 billion and total deposits were up 9% to NZ$33.3 billion. Impaired assets to its total committed exposure fell to 1.30% at September 30 from 1.50% at March 31. The bank's annual expense-to-income ratio fell to 47% from 48.1%.
Over the course of the year deposit growth exceeded net loan growth by NZ$1.4 billion and Westpac's deposit-to-loan ratio rose to 65% from 61%.
In its second half-year Westpac said cash earnings rose 16% (versus the first half-year) to NZ$244 million thanks to its rising margins and above systems growth in both lending (3% rise in net lending) and deposits (5% rise in total deposits). Second half net interest income rose 4%, or by NZ$25 million to NZ$664 million. That was down from an 8% rise for the full year to NZ$1.3 billion.
The 3% lending rise saw lending grow by NZ$1.4 billion. Mortgages rose 2% over the half versus system growth of 0.7% and business lending was up 4% against system growth of 0.4%.
Second half impairment charges fell NZ$38 million, or 28%, to NZ$99 million.
Westpac said second half revenue per banker rose 7% and revenue per full time employee, whose numbers fell by 123 to 4,575 over the full year, rose 5%. Over the second half-year the latter was NZ$185,000. Annual customer numbers rose to 1.26 million from 1.23 million.
Westpac said NZ$18 million of a NZ$23 million rise in economic overlay included in its first-half impairment charge due to the February 22 Christchurch earthquake has now been released.
See the Westpac Group's results in full here.
(Update adds further detail & attachment).
15 Comments
How do I get a Banking licence ? It just goes to show that in a low OCR environment , the Banks margins are massive.
Banks Unsecured lending rates are close to or around 20% per annum, and their borrowing costs are under 5% .
Nice business
That said , its quite unacceptable that banks are so profitable in the worst recession in 100 years
FYI from the union on the result:
Westpac’s strong cash earnings growth shows that the big Australian banks have not only survived but thrived during a global recession on the back off their own staff and customers, says the union for bank workers.
Westpac today reported a 41% rise in annual cash earnings for its New Zealand division.
“Westpac is not alone – BNZ announced an 11.5% increase in annual net profit after tax last week, and ANZ will make its announcement tomorrow,” said FIRST Union General Secretary Robert Reid.
“All of the big banks profits are well and truly back in the cycle of making huge profit jumps each year, while holding down the wages of staff and keeping the pressure on customers with high interest rates.”
“This profit announcement of Westpac comes on top of the revelation earlier that this year that its New Zealand CEO, George Frazis, is earning $NZ 5.8 million a year.
“Westpac workers go into bargaining with the company next week and we want the bank to demonstrate that their own workers are just as much a priority as paying out high dividends or $5.8 million CEO salaries,” Robert Reid said.
“Bank staff are in a similar position to many other Kiwi workers, with pay increases barely keeping up with or falling behind rising costs.
“Unlike some other employers, however, the banks are in the position to be able to pay at least 5% pay increases without scratching the surface of their massive profits.”
Robert Reid said that the banks had been operating without accountability for too long.
“With a government that won’t improve regulation of the banking sector and instead dishes out cuts to corporate tax rates, the big Australian banks have been grabbing the most profits for themselves while sharing as little as possible with customers and staff.”
Robert Reid said now that bank workers were part of New Zealand’s second largest private sector union, that there was an increased expectation that when profit rises, so should pay.
Funny that but when profits drop pay wont.....oh no........
The unions are as normal in never-never dream land...........the short term trend <2 years) is to start seeing layoffs....the Govn's WINZ budget is going to balloon.....fat chance on being out of this by 2014.....but at least its singing the right tune for the ratings agencies ears.....
regards
FYI from the Greens on bank profits.
Record bank profitability and dividend payments of our overseas-owned banks highlights an on-going structural weakness in our economy, said Green Party Co-leader Dr Russel Norman today.
Dr Norman was responding to the posting of strong full-year profit results from Australian-owned ASB, BNZ, and Westpac banks over the last week. Westpac New Zealand announced cash earnings were up 41 percent to $454 million today, a majority of which will be paid out to its parent company in Australia.
“These are very good times for our big four Australian-owned banks, despite the weak economy," said Dr Norman.
“ASB, ANZ, BNZ, and Westpac have collectively sent $8.9 billion out of the country in the form of dividend payments to their parent banks in Australia over the last five years.
“This capital out-flow is unsustainable for New Zealand Inc. and highlights the urgent need for greater local ownership of our banks.
“Only one bank — Kiwibank — approaches anything like a suitable rival to the big four Australian banks, but it controls just 2.5 percent of total banking assets compared to 90 percent controlled by the Australian-owned banks.
“It's not in New Zealand's economic interest to remain a wholly-owned subsidiary of the Australian banks," Dr Norman said.
Last month, Dr Norman questioned Finance Minister Bill English directly about the high level of foreign ownership of our banking sector through parliamentary questions. In response, the Minister said, “The high level of foreign ownership has been an enduring feature of the New Zealand banking system for many years and of itself is not a source of concern.”
“Once again, we see a National Government without a plan to shift our economy onto a more sustainable footing,” said Dr Norman.
“The National Government is happy for the New Zealand economy to remain a cash cow for our Australian banks.”
The Green Party’s plan for the economy involves strengthening Kiwibank through dividend retention and capital injection so that it can effectively compete with the big four Australian banks. The role of the other New Zealand-owned banks, building societies, and credit unions is also important.
“The Government needs to invest further into Kiwibank to bring it up to the point where it can compete effectively with the big four Australian-owned banks,” said Dr Norman.
Good point ctnz, falling bad debts was the bulk of the gains plus taking some of the othe rbanks market share in deposits and loans - good business management I would have thought rather than
Boatman - are you about 15 years old - were you not around in 1987 and many many other periods odf NZ history - no way has this so far been the worst recsession in 100 years
Yep, 87 thru the early 90's was worse than this has been so far, What's more, it was planned and deliberate. Although you could argue the same for the current situation I guess. But any recovery at the moment will be very very slow, if it hapens at all. I don't count 1 continuous quarter of positive GDP growth as being out of recession either, even though that's the official line i think?
NZ has been lucky.....we have been supported by the mineral boom in OZ...and we were better run than most of the rest of the world ie our public debt was minimal....
This is by no means over, even if this doesnt implode into the worst depression in living memory (and I think its 99% certain now) it will be decades of slow Japanese style de-leveraging....
"official line" is what ever the Govn wants it to be.....
regards
"worst recession in 100 years"
a) It isnt over yet, the worst has just been delayed 3~4 years...
and,
b) this is a global event NZ has been lucky to partially side step....so far....
The real drop looks to commence soon....it should take 5 or 6 years to reach the bottom as many mega corps are cash rich and labour light......ie they will ride out 3 years or so....and I think boatman is right....this will look like the 1870s long depression.....
87 was NZ's self-induced stupidity.....I have little sympathy for ppl who gambled in that crazy time and lost......
regards
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