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Westpac is still struggling to make ground in the New Zealand market and the hard times are expected to continue while it builds up its Auckland business, increases efficiency and rebuilds customer satisfaction levels.
The bank, New Zealand's second largest after ANZ National, yesterday reported a March-half net profit of $221 million, a 3 per cent fall on the same period a year ago.
The lacklustre result is a continuation of the bank's relatively poor recent performance which former chief executive Ann Sherry last year attributed to its decision not to take part in the so-called "mortgage wars".
Although Sherry last year initiated a series of measures to reverse Westpac's decline, group chief executive David Morgan said yesterday New Zealand was "a longer-term turnaround challenge".
"With these retail banks, the truth is they're more like ocean liners than tugboats. There's a lot of branches, a lot of people and a lot of customers and you don't turn them around on a dime. I think it's closer to an 18-month turnaround than a six-month turnaround."
New Westpac New Zealand chief executive Brad Cooper agreed it might be 18 months before "sustainable" growth was seen in the bank's bottom line, but he was looking to improve "leading indicators" much sooner.
They included improving the bank's Auckland market share, reducing its expense-to-income ratio and addressing "disappointingly low" customer satisfaction levels.
"They would be three areas we would like to have an impact on fairly quickly."
The bank's lower March-half net profit resulted primarily from a sharp rise in impairment losses - the cash set aside to cover bad loans - and lower margins or per-dollar-profitability on loans and deposits.
Core earnings rose 6 per cent to $367 million but were undermined by impairment losses of $42 million against $11 million a year earlier.
The bank grew total assets by 15 per cent to $41.4 billion, with a 17 per cent increase in loans including a 20 per cent rise in mortgage lending and an 11 per cent increase in deposits.
But there were signs that growth came at a cost, with the bank's overall margin, the difference between interest income and interest costs, falling from 2.44 per cent to 2.20 per cent.
Pressure was felt on lending margins through increased funding costs, repricing of fixed home loans at lower margins, and continued switching from floating to fixed home loans.
The bank also suffered lower margins on deposits as customers switched to high-interest online saver products.
Expenses rose 4 per cent with the bank spending $2 million on "restructuring" that trimmed 400 jobs over recent months, leaving it with 4655 full time employees.
Other significant costs rises included extra spending on advertising as the bank relaunched its brand.
The bank's productivity as measured by its expense-to-income ratio improved marginally to 48.2 per cent but remains higher than most of its major rivals. Meanwhile, Cooper downplayed the significance of the increased impairment losses, which were also noticeable in rival ANZ National's result last week.
While higher impairment losses indicated some borrowers were buckling under the strain of higher interest rates, Cooper said New Zealand had enjoyed a long period of relatively benign credit conditions, "so small movements upwards from a low base will look 'lumpy' in nominal terms".
Although higher mortgage rates were cutting disposable income and "some people are starting to see a bit of pressure" there was no need to worry.
"The only thing that gives you a substantive change on consumer delinquencies is a rapid increases in unemployment. We're not seeing that."
