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Westpac Delivers Solid Earnings Momentum

2 May 2002

Westpac Banking Corporation today announced its results for the 6 months ended 31 March 2002, declaring an operating profit after income tax of $1,018 million. This is an increase of 10% on the corresponding period last year.

Significant features include:

- Core earnings $1,783 million up 14%

- Earnings per share 54.8 cents up 10%

- Interim dividend 34 cents fully franked up 13%

- Expense to income ratio down from 52.2% to 49.4%

- Return on equity maintained at 20.8%

Success in driving revenue growth while maintaining tight expense control over the last three years has seen Westpac achieve a 13% compound annual growth in net profit since March 1999. In the same period earnings per share have increased 14% per annum.

Westpac continues to enjoy significant success in its cross-sell strategy. Specifically the number of customers with a valuable multi-product relationship grew 17% to over 1.4 million in the half. The average number of products provided to these customers has increased to around three per customer.

Westpac’s strong focus on costs has resulted in expense growth being held to 1% on the corresponding period. As a result Westpac’s cost to income ratio is sharply down from around 60% three years ago to below 50% today.

The solid earnings result was achieved despite a sharp increase in bad and doubtful debt provisions to $271 million. This was largely due to a small number of well-publicised problem corporate exposures. The exposures have been robustly provisioned with overall provisioning levels reflecting Westpac’s policy of conservatively providing against problem exposures.

Despite this, impaired assets have declined in the past six months and relative to loans and provisions remain near historic lows. With credit quality remaining in the top tier of banks world-wide, Westpac is in a strong financial position to move forward.

Westpac’s Chief Executive Officer, David Morgan, said Westpac now has a solid track record of earnings growth and strong returns on equity.

“Revenue growth underpins this result, supported by our continued ability to deliver productivity improvements.

“Investment in key initiatives, including the rolling out of our customer relationship platform to all our branches and call centres, and the acquisition of Rothschild Australia Asset Management will assist in maintaining this growth momentum.

“As a result, we are well positioned to meet our aspirations of continued double digit earnings growth,” Dr Morgan said.

Key business group highlights include:

- Australian mortgage outstandings increased 12% and Westpac’s average market share of new bank home lending was above 22%;

- Bank issued credit card transactions are 15% higher than in the first half of last year and Westpac’s overall market share was maintained above 20%;

- Business lending volumes increased 4% over the corresponding period with Westpac’s business banking market share now over 18%;

- Deposit balances increased by 22% on the first half of 2001, giving Westpac a16% market share;

- Australian wealth management contributed $114 million in operating profit, an increase of 13% over the prior corresponding period.

Dr Morgan said Westpac’s customer focused strategy also involves delivering to the broader community. Our 184 community in-store branches provide a strong and viable platform for face-to-face banking in rural Australia. This is consistent with Westpac’s 1998 commitment to maintain face-to-face banking services across rural Australia.

“In addition, we will trial Saturday branch openings in Sydney, as soon as the NSW Parliament passes the appropriate legislation. The customer feedback from the Bank of Melbourne and the recent Queensland trial show that Saturday trading is convenient for customers, particularly home buyers.”

Outlook

The Australian economy has continued to perform well over the last 6 months. This strength has been lead by continuing buoyancy of consumer confidence and resultant retail demand and residential construction activity.

From this base, the economy is well positioned to benefit from the emerging global recovery and should see Australia and New Zealand continue to enjoy solid growth for the remainder of the financial year.

However, the expectation of rising inflation, particularly given the continuing decline in unemployment, is likely to see official rates rise over the second half of the year. This is likely to return monetary policy to a more neutral position from its current accommodating stance.

In this environment we expect to see a continuation of sound lending growth but some moderation from the current cyclical high in home lending. Business lending growth is likely to improve consistent with business investment expectations.

Initiatives we have undertaken over the prior half combined with our strong staff commitment and customer focus are expected to assist us to maintain our earnings momentum into the second half of the financial year.

Ends


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