Westpac NZ has reported a 7 per cent fall in net profit. Photo / NZME
Westpac NZ has reported a 7 per cent fall in net profit. Photo / NZME
Westpac New Zealand is preparing its customers for what it expects to be tougher economic times ahead.
The New Zealand operation reported a net profit of $963 million for the September year and said it is well-positioned as the economy enters a “difficult” part of the cycle.
Excluding notable items,such as the sale of Westpac Life in the 2022 financial year, the bank’s net profit was down 7 per cent compared with the same period last year.
In Australia, the parent company posted a net profit of A$7.2 billion ($7.81b), up 26 per cent, an improved A72c final dividend, and an A$1.5b on-market share buyback reflecting its strong balance sheet.
Key drivers of the New Zealand operation’s decline were a 12 per cent increase in operating expenses to $1.29b and net impairments, which went to $135m compared with a benefit of $27m in the previous period.
Last week, Westpac economists released their Quarterly Economic Overview, which said subdued growth was likely throughout 2024, with uncertainty over higher long-term interest rates and weakness in New Zealand’s key trading partners, most notably China.
Westpac NZ chief executive Catherine McGrath said the bank had invested heavily in helping New Zealand customers through difficult times and strengthening its core business.
She told the Herald that 67 per cent of Westpac NZ’s customers were at least three months ahead on their mortgage repayments - slightly lower than this time last year but higher than in 2020, and 2021.
“That means that through working with customers, they are in as resilient a place as they can be,” she said.
“We expect interest rates to stay a bit higher for longer, and we are making sure that we are well organised and ready to support customers as they go through the interest rate moves,” she said.
Westpac NZ chief executive Catherine McGrath. Photo / Mark Tantrum
McGrath said Westpac prided itself on being a “through-the-economic-cycle” banker.
The previous Labour-led Government announced that the Commerce Commission would conduct an inquiry into the banking sector amid concerns lenders were making excessive profits.
The inquiry was expected to be completed by next August, but it is unclear whether there would still be one under the yet-to-be-formed Government.
McGrath declined to be drawn on the subject.
However, to critics who say bank profits are generally excessive, she said: “Whilst it [$963m] is still a large number, it’s because we are a large organisation.
“We have 1.5 million customers. We have $100 billion in total lending and $80 billion in deposits, and more than 5000 staff,” she said.
“And you really want a strong, well-capitalised bank to be able to support customers as we go through a difficult economic cycle,” she said.
“That’s the way we would look at it.”
In its result, the bank said its net interest margin - the profit the bank makes between the money it takes in and what it lends out - was 2.11 per cent, up 11 basis points but was still below pre-Covid levels.
Home lending was up 3 per cent at $65.8b while business lending was up 2 per cent to $32.8b.
She said the bank had contacted more than 88,000 customers who were due to roll on to significantly higher fixed home loan rates to help them understand their options.
Staff had followed up with phone calls to more than 9000 customers the bank had identified as most at risk of financial stress.
Mortgage stress, as measured by 30-plus day and 90-plus day delinquencies, had increased over the past year, but off a very low base.
Overall, 3.5 per cent of customers were behind on repayments, down from a high of 3.8 per cent from January to March this year.
“We know there is more pain to come, with most homeowners rolling off fixed rates now looking at increases of more than two percentage points on their home loan, which could see some households start to struggle,” McGrath said.
McGrath said that while New Zealand is heading into a difficult phase of the economic cycle, it remained well-positioned compared to other economies.
She said that while the bank’s overview indicated subdued growth was likely throughout 2024, there were still causes for optimism due to low unemployment, wage growth, and a recovery in tourism numbers.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
