Westpac NZ CEO George Frazis believes the worst of the downturn in credit quality peaked in the June quarter and has stabilised in the September quarter, although there may be worse to come from the rural sector.

Frazis spoke to interest.co.nz after reporting that Westpac NZ's cash profits fell 50% to NZ$236 million in the financial year to the end of September. "We saw the peak of that in the third quarter and it has stabilised in the fourth quarter," he said, referring to the trebling of bad debt charges to NZ$572 million for the financial year.

Frazis said credit stress among retail customers had improved in recent months, particularly for credit card and home loan customers. "But there's still some stress in the small to medium enterprise sector and what is still coming through is stress in the agri-sector," he said.

Westpac said two 'names' were responsible for NZ$199 million of bad debt charges reported during the year. Frazis would not say who they were, but they are widely thought to be linked to the failed Albany City property development and the failed clothing manufacturer Lane Walker Rudkin.

Westpac would also not comment on its exposure to Crafar Farms, where Westpac, Rabobank and PGG Wrightson Finance lent over NZ$200 million to the dairy farming group that is now in receivership.

Elsewhere, Frazis said Westpac New Zealand was a long way through its current programme of putting more decision making power and skills back in the hands of managers in the branches, as well as beefing up its business lending capacity.

"We're putting the bank managers back into branches," Frazis said, adding they were being given extra authority to make lending decisions.

Frazis said Westpac planned to open 10 new branches. It was adding 100 new business bankers, including 50 placed inside branches. These would include 20 agricultural bankers and 20 corporate bankers. Westpac was particularly interested in growth in the government, health and education sectors, he said.

Westpac Group's accounts (page 4, section 3.1 in accounts below) show a provision for A$703 million for its structured finance transactions, which the High Court has ruled Westpac must pay to the IRD, although Westpac is appealing. This meant the New Zealand operations would have made a loss for the year of around N$625 million once adjusted for exchange rates.

Westpac Full Year Results to Sept 09