By Jenny Ruth
May 6 (BusinessDesk) - Westpac New Zealand will have brought a note of cheer to its parent’s dismal results as fixing problems revealed by the royal commission into financial services continue to dog the Australian bank.
Westpac NZ lifted first-half net profit 15 percent to $509 million but its Australian parent reported a 24 percent drop in net profit to A$3.2 billion for the six months ended March.
New Zealand chief executive David McLean says his bank benefited from its “ongoing focus on customer outcomes despite a maturing economic cycle and a changing banking environment.”
The result was helped by a fall in charges against profit for bad loans to $14 million, an historic low, from $38 million in the previous first half, and boosted by a $40 million gain from the sale of its Paymark stake.
While net operating expenses rose 3 percent to $480 million, its expense to income ratio fell to 38.5 percent from 39.7 percent in the same six months a year earlier and from 43.4 percent in the six months ended March 2017.
Net interest margin eased one basis point to 2.23 percent. That’s below the 2.3 percent BNZ reported, up six basis points, and ANZ’s 2.38 percent, down from 2.42 percent.
“The low margin environment and evolving regulatory outlook will present challenges into the second half of the year, but we have confidence in the fundamentals of the economy and our capability to execute in response to change,” McLean says in the statement announcing the results.
Westpac NZ has delivered its response at the end of March to the recent bank conduct review conducted by the Reserve Bank and Financial Markets Authority.
“Westpac NZ started removing product-based sales targets in 2017 and all sales targets were removed for frontline branch and contact centre staff from Oct. 1, 2018, with team members now assessed on a range of measures that include quality of conversations and a strong focus on meeting the needs of customers,” the bank says.
Westpac’s KiwiSaver funds under management rose 15 percent to $16.1 billion at March 31 while total deposits rose 4 percent to $64.2 billion. Net mortgages rose 4 percent to $49.6 billion and net business lending rose 5 percent to $30.9 billion.
Westpac says its customer deposits now fund 78.2 percent of its lending, up from 77.9 percent a year ago and 74.2 percent in March 2017.
Within business lending, Westpac’s agricultural lending grew to $9.4 billion at March 31 from $8.9 billion a year earlier with the bank classifying 10 percent of its portfolio as stressed, down from 12.1 percent, and just 0.4 percent impaired, down from 0.5 percent.
“Overall portfolio health remains sound. Dairy stressed exposures have been largely flat since November 2018,” the bank says.
Its focus remains on supporting existing dairy customers with proven long-term viability, it says.
“Domestic milk production for 2018/19 is expected to be up slightly on last season following a record start. This is supporting higher Global Dairy Trade auction prices and lifts in 2018/19 forecast milk price.
“Regulatory reform, increasing costs and disease issues – M. Bovis – continue to pose challenges.”
The Australian parent’s results included A$617 million in provisions for estimated customer refunds and associated costs and a A$136 million charge for “the reset of Westpac’s wealth strategy.”
“The past six months has been a turning point for the bank. We are proactively addressing legacy issues while improving our products and services to ensure they deliver the right customer outcomes,” says Westpac group chief executive Brian Hartzer.
“We’re exiting personal financial advice to focus on the parts of our wealth business where we have a competitive advantage and we are delivering significant cost savings by simplifying our business.”
The dual-listed shares slipped 0.4 percent to $28.97 on the NZX in early trading, and before the ASX open.