Westpac nets a record A$2.8b profit

SYDNEY - Westpac Banking Corp met forecasts with an 11.8 per cent rise in second-half earnings on an improved lending margin and buoyant funds management income, and said it would buy back A$700 million ($748 million) of its shares.

Annual net profit rose 11 per cent to a record A$2.818 billion.

The bank also said it would pay a final dividend of 51Ac a share, taking the full-year dividend up 16 per cent to A$1.

Australia's fourth-largest commercial bank, which bought funds manager BT Financial in 2002, said it was confident about its 2006 outlook, but did not provide a specific forecast.

"The strength of the operating environment combined with the business being in good health provides confidence in Westpac's outlook," the bank said.

Australian banks have benefited from 14 consecutive years of economic growth with unemployment at an almost 30-year low, fuelling demand for credit and keeping a tight lid on bad debts.

But competition has increased on a cooling housing market, foreign lenders offering aggressive deposit rates and business credit growth soaring to a nine-year high, putting pressure on net interest margins, a key measure of lending profitability.

Westpac's New Zealand arm reported pre-tax operating profit of A$708 million for the year, up from A$661 million the previous year.

Chief executive David Morgan said New Zealand's contribution to the group's result was a "very respectable result in a highly competitive market".

Much of the competitiveness in New Zealand was driven by the mortgage price war which was waged throughout the October quarter last year. Westpac NZ kept mostly to the sidelines but felt the squeeze of the competitive market.

The bank's share of new housing lending growth in New Zealand fell to 16 per cent in the second half of the financial year, compared with 20 per cent in the second half of the year.

Westpac said it would buy back off-market about A$700 million of its shares. The share buyback will involve a tender process.

"The final buy-back price will be based on the largest discount to the tender range that enables Westpac to repurchase its targeted amount of capital," the bank said.

"All tenders accepted will receive the same buy-back price."

Westpac said the buyback would involve shareholders tendering their shares at discounts of between 8 per cent to 14 per cent inclusive to the market price or as the final price tender.

Shares in Westpac were the second-worst performing among Australia's five biggest commercial banks over the April-September half, rising 10.9 per cent. The S&P/ASX 200 Index gained 13 per cent.

Westpac shares closed at A$20.51 on Wednesday.

- REUTERS