Westpac New Zealand has announced its half year result. Photo / file
Westpac New Zealand has announced its half year result. Photo / file
Cash earnings at Westpac New Zealand have taken a big hit after the bank increased its impairment charge to $211 million as it prepares to weather the storm from Covid-19 coronavirus.
The New Zealand division of the ASX-listed bank reported cash earnings excluding notable items of $295m for the six months to March 31, down 47 per cent on the prior corresponding half in 2019.
That came as the bank lifted its impairment charge from $14m to $211m.
Last week Westpac Group - the Australian parent - announced a A$2.2 billion impairment charge of which A$1.6b was related to Covid-19 impacts for the six months to March 31.
At the time Westpac Group chief executive Peter King said the world was going through a once-in-a-lifetime health and economic crisis and the bank was committed to assisting as many customers as possible to bridge the shutdown period.
But exactly what kind of impact the New Zealand business is expecting hasn't been revealed until today.
Westpac New Zealand chief executive David McLean said although the impact of Covid-19 occurred last in the half year reporting period it had a significant impact.
"Our entire outlook changed in the space of a couple of weeks as the country went into lockdown. This half year result reflects only the early impacts of Covid-19, and our initial assessment of the lending losses we're likely to see as a result."
Westpac New Zealand's net operating income fell 7 per cent to $1.16 billion as it's non-interest income was down.
While operating expenses at the bank rose 13 per cent to $541m up from $480m.
Its core earnings were down 19 per cent to $621m.
Customer deposits rose 8 per cent to $69b while total net loans were also up 6 per cent to $87b.
Despite the increase in lending the bank has seen its margins squeezed dropping 17 basis points to 2.06 per cent.
McLean said the bank was committed to supporting customers through the impact of the pandemic and helping the economy recover.
"Despite the very serious financial impact that will be felt by many as a result of Covid-19, we're confident New Zealand is well positioned for recovery, having entered the crisis in a sound economic position and having responded to the pandemic very well."
As of April 30 the bank had given mortgage or personal loan relief to 22,118 customers on loans totalling $7b.
It also converted $1.4b of business loans to interest-only or reduced repayments for 1560 business customers.
The bank had also received more than 600 applications for loan through the Government's Business Finance Guarantee Scheme. The scheme was tweaked on Friday as the Government announced direct interest free loans to small businesses amid concerns banks were not doing enough to lend to small businesses.
Westpac New Zealand chief executive David McLean. Photo / file
McLean said early and bold action by the Government and regulators, supported by banks had helped reduce the immediate impact of Covid-19 on customers and the economy.
"Interest rates remain at all time lows, which will help soften the impact on borrowers whose incomes have been reduced, and wage subsidies and mortgage deferrals give households and businesses time to regroup.
But he said low interest rates would also make it harder for depositors who depend on their investment income and would continue to compress bank lending margins.
Australian parent Westpac Group declared a net profit of A$1.19b for the half, down 62 per cent on the prior corresponding period while its cash earnings fell 70 per cent to $993m.
The bank also deferred its decision on paying out a dividend, a move emulating rival ANZ bank which made that call last week.
