Westpac NZ annual profit bounces back after major reversal in loan impairments

Westpac New Zealand's annual profit rose 69% helped by a big turnaround in loan impairments.

Westpac NZ's September year net profit after tax rose $381 million, or 69%, to $931 million from $550 million in the year to September 2020. Last year's annual profit was a 43% drop off the back of rising loan impairment charges.

A major factor in the big increase this year was a $404 million turnaround in loan impairments from a $320 million charge last year to an $84 million benefit this year.

Westpac NZ's net operating income rose 8% to $2.463 billion, and its operating expenses rose 7% to $1.132 billion. Net interest income was up 9% to $2.118 billion.

The bank's net interest margin rose three basis points to 2%, and its cost to income ratio improved 45 basis points to 45.96% from 46.41%.

Home loan lending grew a net 10% to $60.9 billion with Acting CEO Simon Power saying Westpac NZ's home loan growth had been about 0.9 times system growth. Customer deposits rose 7% to $75.9 billion.

Power says how customers are faring against the backdrop of Covid-19 and restrictions related to the virus is very sector specific and very geography specific.

"At a general level small businesses and other businesses have been better prepared for Covid this time around and so we haven't seen the demand for facilities and lending that we necessarily saw in the first big lockdown [last year] looking for headroom," Power says.

"What we have seen is transaction accounts and savings accounts with higher levels in them than this time 12 months ago helping prepare businesses for any need for reserves to be used."

As a general statement Power says businesses are better prepared now than at the onset of the pandemic.

"But sector by sector we're definitely seeing stresses starting to emerge in the hospitality, accommodation and tourism areas and we're keeping a very close eye on what the medium term outlook might be for those sectors in particular," Power says.

Nonetheless Westpac NZ chief financial officer Ian Hankins says the hospitality, accommodation and tourism sectors typically don't have large debt.

"You won't see big exposures across our [lending] portfolio in that space. But still a lot of them are in pain and the focus is to do what we can to support them," says Hankins.

Power says funds under management in the Westpac KiwiSaver Scheme increased 14% year-on-year, to $9.1 billion with the average Westpac KiwiSaver Scheme balance up 16% to $23,717, helped by strong financial market performance.

“Last year we increased our lending provisions to $657 million to reflect the economic outlook from expected COVID-19 impacts. The economy has performed better than expected and, as such, our lending provision levels have reduced to $525 million, representing 0.6% of our total lending portfolio," Power says.

Figures released by Aussie parent Westpac Banking Corporation show Westpac NZ customer numbers dropped 10,000 to 1.33 million in the September year from 1.34 million. Branch numbers fell to 116 from 143, and ATM numbers were down to 464 from 495.

Power says customer numbers have been "flattish" year-on-year.

"We've been working hard with existing customers to deepen those relationships with them. We're keen to make sure we're growing the franchise and that's very much a focus for the year ahead," says Power.

Westpac Banking Corporation announced an A$3.5 billion off-market share buyback alongside the group's 105% increase in annual cash earnings to A$5.352 billion. Westpac's also paying out A$2.2 billion to shareholders through a final dividend of 60 cents per share.

Meanwhile the Westpac Banking Corporation also said; "our New Zealand business is reviewing its processes for some products relating to the requirements of the New Zealand Credit Contracts and Consumer Finance Act 2003. The outcome of this complex review is uncertain and could result in customer remediation, regulatory action and litigation."

The charts below, covering Westpac NZ, come from the Westpac Banking Corporation.

Here's the Westpac Group results announcement.