Westpac New Zealand's annual profit fell 18% as operating expenses rose significantly faster than income grew, and the bank swung to loan impairments from impairment benefits, or write-backs, the previous year.
Westpac NZ's net profit after tax for the year to September 30 fell $205 million, or 18%, to $963 million from $1.168 billion the previous year.
Net operating income rose $61 million, or 2%, to $2.774 billion, and total operating expenses climbed $137 million, or 12%, to $1.295 billion. Loan impairment charges weighed in at $135 million versus benefits of $27 million last year.
The bank's net interest margin rose 11 basis points to 2.11%. Net interest margin measures the amount of money a bank is earning in interest on loans compared to the amount it's paying in interest on deposits.
Annual deposit growth came in at 2%, with total deposits rising to $79.8 billion. Net lending grew 3% to $99.3 billion. Housing lending rose 3% to $65.8 billion, and now comprises 66% of total lending, up from 64% year-on-year. Business lending rose 2% to $32.8 billion.
Hardship levels remain low
Westpac NZ CEO Catherine McGrath says customer hardship levels remain low with the number of home loan borrowers behind on repayments reducing over the past six months.
"In the past six months, the bank has reached out to more than 88,000 customers who were due to roll on to significantly higher fixed home loan rates to help them understand their options."
"We’ve also followed up with phone calls to more than 9,000 customers who we’ve identified as most at risk of financial stress, and we’ve expanded our extra care team to provide more proactive support," McGrath says.
"During the low interest rate period of two to three years ago, many homeowners built up a savings buffer and most now remain well placed to manage interest rate rises."
Figures in a presentation from Aussie parent the Westpac Banking Corporation puts Westpac NZ's 90+ day mortgage delinquencies at 0.33% at September 30, up from 0.22% a year earlier. It has Westpac NZ's 30+ day mortgage delinquencies at 0.71% versus 0.45%, and stressed exposures to total committed exposures at 1.49% versus 0.97%.
Teams up with Biocatch to fight scams
Westpac NZ also says it recently became the first NZ bank to partner with Israeli behavioural biometrics company Biocatch as the bank battles fraud and scams targeting its customers.
"The bank is upgrading its analytics and rules-based fraud monitoring, and its integration of biometrics software through Biocatch will help it to detect unusual customer behaviour online that could indicate a customer had been scammed," says McGrath.
"For example, if a customer is tricked into divulging their account login details, the new technology will help us identify and block attempts by cyber criminals to take over their account."
"However, scammers adapt quickly to new customer safeguards, which is another reason why the increased collaboration between banks, telecommunications companies, police and other agencies is so important," McGrath says.
She says Westpac NZ turned on Biocatch in early September and it’s collecting behavioural data to help learn how individual customers behave online.
"We hope to have it fully operational by the end of the month. The technology essentially provides a frictionless extra layer of security for customers. The data is fully anonymised, so Biocatch doesn’t know the identity or details of the people it’s helping protect."
In September the NZ banking industry bowed to pressure from critics of its slow response to rampant scams, announcing it would introduce name and account number checking and take action to freeze mule accounts used to siphon money scammed from customers.
The New Zealand Banking Association (NZBA), the lobby group for NZ banks, said it would "investigate” real-time information sharing on scams, more “consistent and timely” outcomes for scammed customers and said it supported a National Anti-Scam Centre, similar to those already in operation in Australia and Singapore. Banks would also remove all web links from texts to customers.
Westpac Group profit up 26%
The Westpac Banking Corporation posted a 26% rise in annual net profit after tax to A$7.195 billion. Its net interest margin rose two basis points to 1.95%, and annual dividends increased 14% to A142 cents per share. The group's common equity tier one capital ratio came in at 12.4%, a rise of 109 basis points, and its return on equity rose 199 basis points to 10.1%. The Westpac group also announced a A$1.5 billion share buyback.
*The charts below are for Westpac NZ.
The Westpac NZ press release is here.
41 Comments
That implies most of them weren't already on 30y mortgages. I doubt that's the case.
Edit: because most of those that were vulnerable only bought in the last few years, those that bought <5 years ago and didn't climb the ladder have small mortgages that are no worse than rents anyway.
Pretty sure that what constituted a non performing mortgage in the eighties certainly doesn't now. Interest only, mortgage repayment holidays, you name it are all the rage now. Westpac reaching out to its vulnerable en masse is certainly all dressed up to sound people friendly and commendable for sure.
For how long will people accept negative equity and the treading of water. Renting is the cheaper option with comparatively more freedom at a time when the bank owns them. This is not the pathway to financial success they were spruiked.
I agree that renting long term is not the intended outcome here however, the idea of using a financially and emotionally stressing mortgage as a vehicle to financial success is simply not worth it. Home ownership is meant to be an uplifting experience - right?
Peoples mental health has to be considered here. Health is your wealth!
The more deposit one saves, the more equity they own up front and the less loan they're pay 8% interest on. These low equity loans and usage of Kiwisaver greatly concerns me. There is no hurry - no FOMO.
Trust me your mental health at 65 after years of renting and still trying to find the rent money when you really want to retire will not be good for ones health. Don't you already own a mortgage free home RP ? or would you rather still be renting ? How many people really want to work until the day they die ?
Yup - I feel this argument about not owning your own home being a great source of stress always seems to rest on the assumption that these people own no other assets.
Are some people undisciplined with their finances and piss away the difference between rent and mortgage + rates + insurance + maintenance? Yes.
Does that mean it's not possible to invest the difference between the above, reach retirement age, and have an investment portfolio delivering returns that cover the rent and more? No.
For many disciplined savers, it's entirely possible that owning a home is a poor financial decision (ignoring the many non-financial aspects of home ownership, which individuals are free to place their own value on). Nothing wrong with pointing that out.
I've crunched some numbers in the past. Invest 20% deposit ($160k) into the S&P500, and then the difference between renting/owning ($600 pw) by year 25 you'll compound approx $2m cash (20 yr S&P return of 7% b4-tax). What I didn't factor in is rents rise but mortgages generally don't, so that $600/ week difference diminishes over time. Even with rates & insurance increasing, it's by about year 13 - 15 that renting becomes more expensive than owning.
You take that $800k house, inflate it by 5% p.a. then by year 20 it's worth $2m.
Actually here’s a third way - save and invest well and don’t own a house until your early to mid 60s, then buy a small and more affordable flat / apartment with cash. Potentially the best of all worlds - freedom, flexibility and mobility when younger, security when older.
If not the default choice, it may become the default reality for many.
Thumbs up for that 3rd way. Freedom, flexibility and mobility can also mean people have a much more interesting life as they're not tied down to paying a big mortgage (not such an issue in the past but it is at today's house prices). A lot of people will also receive some form of inheritance from their family and/or the one they married into by the time they're in their 60's, potentially allowing them to purchase a property outright.
Yep I was thinking of the inheritance factor too. For many people maybe its a mid to late 50s purchase of a flat / apartment rather than early to Mid 60s.
Of course all predicated on saving and investing well while renting.
We rented until I was 48. Save for the odd bad experience it was mainly great. Great flexibility and much more affordable than buying. We could live near great schools and have small commutes. And I was moderately disciplined in saving and investing (got much better after about age 37/38, was piss poor before that)
I intensely dislike the one dimensional rhetoric of ‘you myst buy a house when you are relatively young OR ELSE!!!’
Good point. I guess my only gripe with that would be how does the mobility when one is younger play into the kids shifting several times, potentially different schools?
18th Birthday: "Sorry we moved so many times and you had to change schools so often, it's hard making new friends. But check this out daddy made bank on the NZX50." Character building I suppose?
So much for mortgagee/distress sales - they simply haven't emerged in significant numbers.
That's good news, of course, except for the misery merchants here (like the one above: Retired-Poppy) who relentlessly yearn for widespread oppression, doom and gloom across the housing market.
TTP
The ways that the banks deal with mortgage arears could be described as "kicking the can down the road". And comments like, "people built up savings" over the low interest rate period further that conclusion.
Give it another 6 to 12 months ... and let's see what transpires.
"During the low interest rate period of two to three years ago, many homeowners built up a savings buffer and most now remain well placed to manage interest rate rises."
Don't forget the average mortgage is 7.4 years old, and ~1/2 the average rent, so even with increased interest rates, most will be just fine.
It's mostly the over-leveraged who have been squealing - and they're a tiny percentage that just happen to be significantly over-represented (particularly in media).
The Basel III accord introduced after the GFC of 2008, to ensure the resilience and stability of the banking system, requires commercial banks to maintain a minimum Common Equity Tier 1 of 6%.
The group's common equity tier one capital ratio at 12.4% is definitely a nice position to be in, both for investors and depositors. Good work. On the other hand, the 12% increase of total operating expenses is far from optimal, and definitely something to be closely monitored - some targeted cost cutting might be required to keep it under better control.
NZ is still running on Basel II by the looks of it, but we have/are introducing higher requirements anyway.
https://www.rbnz.govt.nz/regulation-and-supervision/oversight-of-banks/…
"During the low interest rate period of two to three years ago, many homeowners built up a savings buffer and most now remain well placed to manage interest rate rises."
Does this mean people got ahead of their 30 year terms, and now the bank is "helping them" back to their original 30 year term because they can't afford the current repayment? That can only work for a short period obviously.
scratching my head a bit on this one. In the last 2-3 weeks I've had feedback from contacts within ANZ, ASB and one non-bank lending firm that the distress is starting to come through. Admittedly I'm referring more to commercial property lending than residential but notwithstanding this their anecdotal comments were the complete opposite of Westpac's.
Also had a mate in the weekend tell me he submitted for consent for home renos recently. The architect told him it would likely be 3-4 weeks. It came back approved in 3 days!!!! Auckland Council.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.