Westpac NZ first quarter earnings 'stronger with lower impairment charges', Australian parent says

The Westpac Group says Westpac New Zealand recorded stronger earnings in the first quarter of its financial year with lower impairment charges.

This was the only mention of New Zealand in the group's first quarter trading update released today, with no additional detail of the New Zealand business provided.

However, in a separate report on the group's capital position Westpac said  both key capital adequacy ratios - tier one and total - rose at Westpac NZ in the December quarter to 11.1% from 10.5% and to 13.6% from 13%, respectively. The Reserve Bank mandated minimums are 4% and 8% respectively, although Westpac NZ, because it still has debt covered by the Crown Wholesale Funding Guarantee Scheme, must retain a tier one capital ratio of at least 6%. See more here from the Reserve Bank on bank capital adequacy ratios.

The increase in Westpac NZ's capital ratios comes after the issue of 1.130 billion shares to its parent at NZ$1 each in late October to help fund the transfer of more than NZ$6 billion worth of assets and over NZ$5 billion of liabilities from its parent to bring the bank in line with Reserve Bank rules.

Overall the Westpac Group said its cash earnings for the three months to December 31 fell 6% to A$1.5 billion from A$1.6 billion in the same period of the previous year. Westpac's the third of the big four Australian banks to report financial results over the past few days.

Yesterday ASB's parent Commonwealth Bank of Australia reported a record half-year profit, something ASB also recorded, with its net profit up 31% NZ$372 million. And last week BNZ's parent National Australia Bank said first quarter cash earnings rose 8% to A$1.4 billion from A$1.3 billion as BNZ delivered a "solid performance" reflecting its ongoing focus on deposit growth and strong cost discipline in a slowly recovering economy. Tomorrow the ANZ Group is due to issue its first quarter trading update.

Westpac Group chief executive Gail Kelly said the first quarter result reflected a more challenging operating environment which contributed to an A$200 million decline in market related income.

"Operating conditions deteriorated in the December 2011 quarter with slowing global growth and an escalation in the European sovereign debt crisis leading to high market volatility and increased business and consumer caution," said Kelly.

"More recently, events to shore up liquidity in Europe have assisted in improving market sentiment, although given the fundamental issues in that region we remain cautious about the outlook."

She said lending rose 1% in the quarter and was fully funded by about A$5 billion in customer deposits raised with almost all this coming through term deposits. The group's net interest margin was 10 basis points lower in the quarter compared with the average for the third and fourth quarters of the previous financial year. Kelly attributed this drop to higher funding costs and lower Treasury earnings.

Earlier this month Westpac said it was cutting about 400 jobs in Australia.

Meanwhile, Kelly said funding costs rose "materially" through the December quarter, mostly through higher deposit costs, with this trend continuing into 2012, further impacting margins. Expenses were about 2% higher than the average in the third and fourth quarters. Impairment charges were about A$300 million in the quarter, up "modestly" from the third and fourth quarter average.

Westpac has raised A$10 billion in term funding so far this financial year with an average duration of 4.4 years.

(Updates add NZ capital adequacy ratio detail, line on Australian job cuts).