Westpac posts 41pc rise in cash earnings

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Westpac New Zealand has posted a 41 per cent rise in annual cash earnings after a big drop in impairment charges as rise in income as net interest margins rose.

Westpac's cash earnings for the year to September 30 rose to $454 million from $322 million the previous year. The bank's net operating income rose 8 per cent to $1.668 billion outstripping a 5 per cent rise in operating expenses to $784 million. Australian parent Westpac Banking Corporation posted just a 7 per cent rise in annual cash earnings to A$6.3 billion.

Impairment charges fell 32 per cent to $236 million.

Net interest margins, helped by customers switching to more lucrative floating, or variable, rate mortgages from fixed-term ones, rose 22 basis points across the year to 2.33 per cent and 9 basis points in the second half-year to 2.38 per cent.

Nearly 60 per cent of industry wide home loans by value are now on floating rates compared with 87 per cent on fixed-term rates just three years ago. Banks tend to do better out of floating, or variable, mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between swap rates and fixed rate mortgages.

The strong jump in profit came despite just a 3 per cent rise in net loans to $51.2 billion and 3 per cent rise in total assets to $52.6 billion.

BNZ last week reported a $69 million, or 11.5 per cent, rise in annual net profit after tax to $671 million and an $88 million, or 17 per cent, rise in cash earnings to $612 million.. In August ASB, which has a June balance date, posted record annual net profit of $568 million. ANZ reports its annual results tomorrow.

Meanwhile, Westpac said its term deposits rose 8 per cent to $19.2 billion and total deposits were up 9 per cent to $33.3 billion. Impaired assets to its total committed exposure fell to 1.30 per cent at September 30 from 1.50 per cent at March 31. The bank's annual expense-to-income ratio fell to 47 per cent from 48.1 per cent.

Over the course of the year deposit growth exceeded net loan growth by $1.4 billion and Westpac's deposit-to-loan ratio rose to 65 per cent from 61 per cent.

In its second half-year Westpac said cash earnings rose 16 per cent to $244 million thanks to its rising margins and above systems growth in both lending (3 per cent rise in net lending) and deposits (5 per cent rise in total deposits). Second half net interest income rose 4 per cent, or by $25 million to $664 million. That was down from an 8 per cent rise for the full year to $1.3 billion.

The 3 per cent lending rise saw lending grow by $1.4 billion. Mortgages rose 2 per cent over the half versus system growth of 0.7 per cent and business lending was up 4 per cent against system growth of 0.4 per cent.

Second half impairment charges fell $38 million, or 28 per cent, to $99 million.

Westpac said second half revenue per banker rose 7 per cent and revenue per full time employee, whose numbers fell by 123 to 4,575 over the full year, rose 5 per cent. Over the second half-year the latter was $185,000. Annual customer numbers rose to 1.26 million from 1.23 million.

Westpac said $18 million of a $23 million rise in economic overlay included in its first-half impairment charge due to the February 22 Christchurch earthquake has now been released.

INTEREST.CO.NZ