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Focus on customers as Westpac net profit up 6%

30 October 2008

Focus on customers as Westpac New Zealand net profit up 6%

Westpac New Zealand* today announced a net profit after tax of $484 million for the year ended 30 September 2008, up 6 per cent on the same period last year. Core earnings (pre tax and impairment charges), were up 17% to $883m.
Acting Chief Executive Bruce McLachlan said the annual result was an encouraging one in a challenging environment, and a positive reflection on how Westpac has progressed in the past 18 months.

“I am pleased with the way the bank has responded to economic conditions by focusing on fundamentals such as expense and margin management, but at the same time being willing to innovate,” Mr McLachlan said.

“We continued to grow our customer base through the year, with particular success being the performances of the Westpac Debitplus Visa Card, the Cash Plus Trust (Cash PIE) and the Westpac Kiwisaver Scheme.

“We have just celebrated the signing up of the 100,000th customer to Westpac Kiwisaver, and see retirement savings as a key growth area going forward.”
Mr McLachlan said the underlying performance of the bank in key areas was strong.

Highlights of the result included a strong performance from Westpac New Zealand’s business banking unit, with lending volumes up 15% for the year driven by an increase in term loans, particularly in the Agri sector.
Consumer lending was up 7%, impacted by slower mortgage growth in the second half.

Disciplined management saw expenses up just 2% as wage increases were offset by benefits from supplier re-negotiations in technology, print cost savings and call centre process improvements. As a result Westpac New Zealand improved its cost to income ratio 330 basis points to 44.2%.

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Impairment charges were up $89m on the same period last year, reflecting deterioration in the New Zealand economy.

Mr McLachlan said the impairment charges were driven by higher individually assessed provisions across business lending, combined with some stress evident in the housing portfolio reflecting the tight economic conditions and high interest rates through most of the year.

“Westpac New Zealand is closely managing its exposures and has directed more resources into its credit team. It is clear that by acting quickly at signs of payment stress we can achieve outcomes that are better for both our customers and our shareholders.”

Mr McLachlan said impairment charges were likely to remain elevated through this period of downturn in the economy.

“Our provisioning is prudent and the charges we are taking reflect Westpac New Zealand’s appropriately conservative risk assessment processes and our desire to maintain the asset quality of our balance sheet.

“Important for me has been the ability of Westpac New Zealand to retain its focus on customers. We have made gains in the number of our products utilised per customer, and have accelerated the uptake of online banking. The launch of our hotpoints American Express card in the third quarter has also resonated with our customers,” Mr McLachlan said.

“We have enhanced our leadership position in corporate responsibility through the year. We are switching our entire car fleet to more environmentally friendly vehicles, invested in our financial literacy programme to help New Zealanders to manage their money and, on top of our long-running sponsorship, our staff helped to raise over $900,000 through the Westpac Rescue Helicopter appeal.

“Westpac New Zealand’s capital position is robust, significantly exceeding the Reserve Bank of New Zealand’s requirements. We have substantial holdings of liquid securities and undrawn funding lines at our disposal.”
To further enhance Westpac New Zealand’s funding capability the bank has recently completed a $5.0b RMBS (Residential Mortgage Backed Security) facility that is eligible for repo with the Reserve Bank of New Zealand.

“In the current environment, our ability to maintain our strong capital position and grow our underlying profitability, while continuing our contribution to the communities within which we work, is a very positive outcome,” Mr McLachlan said.


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