Westpac NZ half-year profit rises 15% to record high boosted by sale of Paymark stake, solid income growth and drop in bad debts

Westpac NZ half-year profit rises 15% to record high boosted by sale of Paymark stake, solid income growth and drop in bad debts

Westpac New Zealand has posted a 15% rise in half-year cash earnings boosted by the sale of its 25% stake in Paymark, and as income rose at twice the pace of expenses and loan impairments fell.

Westpac NZ's cash earnings for the six months to March 31 rose $73 million, or 15%, to $555 million from $482 million in the same period of the previous financial year.

Operating income rose $74 million, or 6%, to $1.248 billion, with net interest income up $36 million, or 4%, to $1 billion. Operating expenses rose $14 million, or 3%, to $480 million. Loan impairments dropped $24 million, or 63%, to $14 million. 

Westpac NZ said without the proceeds from the sale of its 25% Paymark stake, cash earnings were up 7%. It said the gain on the sale of its Paymark stake contributed $40 million to non-interest income. ANZ NZ, ASB, BNZ and Westpac NZ, which each owed 25% of Paymark, sold the electronic payments processor to France's Ingenico Group for $190 million. 

The bank's net interest margin was down one basis point to 2.23%, and its cost-to-income ratio reduced by 123 basis points to 38.46%. Over the six months from September 30 last year to March 31 this year, customer deposits increased 4% to $64.2 billion, and net loans rose 2% to $82.1 billion. Mortgages were up 1% to $49.6 billion.

"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," Westpac NZ CEO David McLean said.

In terms of the Reserve Bank's proposals to increase bank capital requirements, parent the Westpac Banking Corporation says to meet the proposed minimum Tier 1 capital ratio of 16%, Westpac NZ would require an additional $3.5 billion to $4 billion of Tier 1 capital if applied at March 31.

Westpac NZ used to only issue a cash profit figure, and not a net profit after tax figure, in its results releases. However, this has changed with the bank's interim net profit after tax rising $67 million, or 15%, to a record high of $509 million.

Meanwhile in Australia, parent the Westpac Banking Group posted a 22% drop in interim cash earnings to A$3.296 billion. However, when remediation and restructuring costs of A$753 million are excluded, cash earnings were down 5%. Its fully franked interim dividend was unchanged at A94 cents per share, equivalent to 98% of cash earnings. Return on equity was down 350 basis points to 10.4%.

Here's Westpac NZ's press release. 

Here's the Westpac group release, and here's the Westpac group presentation

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Looks like Westpac should be able to afford the upcoming increased capital requirements easily.

meanwhile the div yield is 7.5% a lot better than lending Westpac your money as a deposit and most likely just as safe with the OBR

Pretty sure the share price would plummet with an OBR event. Might be a good time to buy bank shares just after an OBR, but wouldn't want to be holding the day they announce the OBR.

If Westpac are confident in the fundamentals of the economy then why isn’t this reflected in higher interest rates! The only thing we are seeing and hearing is a future of lowering interest rates which is hardly a positive reflection on the state of the economy but rather an unspoken acknowledgment that debt levels are so big that they have to be kept manageable by these low rates.

Did Westpac disclose their exposure to the derivatives market? Saw a graph yesterday which showed a frightening amount of exposure by 5 Aussie Banks but pleased to see that Westpac had the lowest exposure by a long way.