KEY POINTS:
Growing pressure felt by business customers has forced Westpac New Zealand to increase its provisions for bad loans, eating into its profits.
Yesterday the bank, which is New Zealand's largest after ANZ National, reported a March half year net profit of $244 million, up 12 per cent on the same period last year.
But the March profit was only up 2 per cent compared to the six months to September 2007 despite revenues increasing by 5 per cent from $733 million to $772 million.
Westpac New Zealand chief executive Brad Cooper said profits in the six months to March had been hit by increased impairment losses.
The bank's impairment facility, or money it sets aside to cover bad loans, increased from $39 million to $62 million over the past six months.
Cooper said business banking had been a driver with one unnamed party accounting for a $12 million loss alone.
"Businesses are facing higher exchange rates and higher salary costs which is affecting performance - when that happens they are put into our watch list - and that increases the provisions which are a percentage of that."
Cooper said he did not expect the provisions to drop any time soon.
"It's going to be pretty challenging for businesses. We had 10 years of pretty strong growth in New Zealand and very good economic conditions - the provisions have come up from a very low base."
In the year to March 2006 its provisions were only $11 million.
Deliquency provisions for consumer mortgages had also increased although they remained less than 0.3 per cent of its total loans.
Cooper said Westpac had put an extra 40 people into its collections area to help manage the business.
Despite the tougher conditions Cooper said he was pleased with the result and described it as "solid" and "encouraging" in the face of the volatile market.
He said increasing customer numbers and improvements in customer satisfaction had played a key part in the firm's revenue growth over the last year.
The bank added 31,000 new customers to its book in the last six months alone.
Cooper said by improving customer service it hoped to encourage existing customers to switch products held at other banks to Westpac. It had also managed to keep a tight rein on costs with expenses up 2 per cent but the cost to income ratio down 330 basis points to 45.2 per cent.
The bank grew total assets from $41.4 billion to $46.3 billion boosted by a 12 per cent increase in lending and a 15 per cent increase in deposits.
Business lending was also up by 14 per cent driven by agribusiness, property and corporate lending.
However the growth came at a cost with the bank's net interest margin, the difference between its interest income and interest costs, decreasing three basis points on the same period last year.
The bank said the margin squeeze was a reflection of higher funding costs and more people moving to fixed housing loans.
