Westpac halves its NZ earnings

Westpac today reported net profit for its New Zealand division has been cut in half during the current recession.

Earnings fell to $236 million in the year to September.

The earnings were affected by a tripling of impairment charges to $572m, in what the company today described as a "challenging and disappointing year" for the New Zealand operations.

Core earnings, before impairment charges, rose 4 per cent to $901m.

The rise in core earnings was driven by a 7 per cent rise in net interest income to $1.24 billion, with a 5 per cent rise in average loan balances supported by a 7-basis point improvement in interest margins.

Deposit competition had been intense and that, combined with a large shift into lower spread products - mostly term deposits - led to a contraction in deposit spreads over the year by 56 basis points, Westpac said.

Loans and deposits grew 3 per cent and 6 per cent, respectively during the year, compared to the previous full year.

Mortgage growth moderated during the year, rising 3 per cent, as lower house prices and weaker economic activity dampened demand, Westpac said.

Other consumer lending was largely unchanged, with slowing consumer spending and a lower risk appetite given the weaker economic environment.

Business lending lifted a marginal 1 per cent, affected by deleveraging and low economic activity.

Deposit growth was "very solid" with virtually all the growth recorded in term deposits. The growth in deposits was sufficient to fund lending growth, Westpac said.

Non-interest income fell 4 per cent over the year to $407m, due to lower transaction and activity fees given reduced customer and merchant activity.

The large rise in impairment charges reflected two large impaired assets and a general deterioration in asset quality in both the business and consumer portfolios, the company said.

The two large names accounted for $199m in impairment charges with a relatively high level of provision requirement.

For the second half of the year, New Zealand cash earnings fell to $34m from $202m in the first half, with two-thirds of the year's impairment charges concentrated in the second half.

Core earnings, before impairment charges, fell $41m to $430m in the second half, mainly due to lower non-interest income.

The parent Westpac Banking Corporation reported a 10.7 per cent decline in full year profit and said it was entering the new fiscal year with strong momentum as the bad debt credit cycle stabilised.

Net profit was A$3.446 billion ($4.36b) for the 12 months to September 30, compared with A$3.859b in the prior corresponding period, Sydney-based Westpac said in a statement.

Pro-forma cash earnings, the bank's preferred measure because it takes out fluctuations based on unrealised losses on asset values, fell 8 per cent to A$4.627b.

Chief executive Gail Kelly said the group successfully expanded its customer base and distribution capability, providing a solid foundation for healthy returns for shareholders, and better service and product offerings for customers.

- NZPA