Westpac NZ CEO George Frazis says PM's 'decisive, responsive decision making' has helped make Kiwis more positive than Aussies

By Gareth Vaughan

Westpac New Zealand CEO George Frazis says New Zealanders are now more positive than their Australian counterparts about the economic outlook with the government, led by an 'ex-banker" in Prime Minister John Key deserving some credit for this.

Speaking to investors and analysts via a conference call held by Australia's Westpac Banking Corporation as he delivered a presentation on Westpac’s New Zealand division yesterday, Frazis said the New Zealand economic and political environment was "quite a different picture to Australia," calling for a "more tilted" strategy towards growth.

"What I've seen from spending time in both markets is that New Zealanders are now feeling a bit more positive than their Australian counterparts," said Frazis. "And it's worth discussing what the key elements behind this sentiment is."

Firstly, he said, New Zealand has a "solid and consultative political leadership" where government and industry work together to address key issues.

"A good example of that is how the government and industry worked on dealing with the Christchurch (earthquake) challenges. The Prime Minister has a business background, an ex-banker, and this is resulting in quite decisive, responsive decision making based on really sound, fundamental economic objectives," Frazis said.

"For banking what that sees is a government much more focused on growth and credit availability, which in turn is contributing to the improved economic outlook."

This approach, he noted, was in contrast to "being critical about rate changes" as Australian politicians were towards Westpac in 2009 and ASB's parent Commonwealth Bank of Australia last November when they increased interest rates above the level of Reserve Bank of Australia cash rate hikes.

"We're also operating in a more rational, competitive pricing environment (in New Zealand) with none of the majors seeking to make their mark as a price discounter," Frazis added.

He painted a picture of a bright economic outlook for New Zealand saying the country had a "strong" government, a strong Gross Domestic Product (GDP) outlook, an improving housing market, increased net migration, the upcoming stimulus of the Rugby World Cup which the Reserve Bank of New Zealand estimates will be worth about NZ$700 million, plus ongoing strong soft commodity prices all contributing to "a very supportive" environment.

Frazis, one of the country's highest paid executives with a near NZ$6 million annual pay package last year, said Westpac expects New Zealand GDP to grow 2.4% in 2011 and 4.5% in 2012.

Earthquake impact 'not as bad as feared'

Furthermore, Frazis said, it was now clear that the financial impact of the Christchurch earthquakes on Westpac was likely to be less severe than initially expected and that the housing market was improving. 

"With much of New Zealanders wealth actually tied up in housing, this greater stability is adding to confidence," Frazis said.

In the earthquake red zones, where the government has offered to buy badly damaged houses at 2007 prices, Frazis said Westpac held mortgages on about 950 of the 5,000 houses.

"Out of those 950 houses, there's only six houses that have a valuation shortfall to the tune of less than NZ$100,000 all up."

In the orange zones, where it's not yet clear whether residents will be able to remain in their homes, the cost stemming from the houses with Westpac mortgages is about NZ$300,000, Frazis added.

"Although it's still early days, if we look at the economic overlay that we took at the half-year as a result of the impact of households from the earthquake, it's likely to be seen as quite conservative."

Westpac's half-year results, released in May for the six months to March 31, showed a A$32 million "new overlay" stemming from the February 22 Christchurch earthquake within the bank's collective provision charge.

Frazis, who said Westpac aims to expand its wealth, insurance and financial planning businesses in New Zealand, was also upbeat on the bank's third quarter performance ahead of the Westpac Group's third quarter trading update due on August 16.

"The general themes that you will see evident in the Westpac New Zealand results are evidence of a slowly improving economic environment but much more confidence around that recovery across the board, systems (credit) growth that's improving with Westpac's share on the rise across all of our major products, continuing margin improvement being driven by both business and consumer customers though more the latter, a well managed expense profile through productivity which doesn't compromise the ongoing investment in the business, and finally impairment charges continuing to moderate."

Westpac's latest General Disclosure Statement, for the March quarter, showed the bank grew profit after tax by NZ$22 million, or 30%, in the three months to March to NZ$96 million despite a NZ$82 million drop in total gross loans to NZ$50.739 billion.

For the six months to March Westpac's cash earnings rose 68% to NZ$210 million from NZ$125 million in the same period of the previous year due to a NZ$71 million reduction in impairment charges and NZ$50 million lift in core earnings. Margins rose 22 basis points from the equivalent period of the previous financial year, and 13 basis points from the six months to September last year, to 2.29% with Westpac saying much of the growth came from the maturity of lower spread fixed rate mortgages and customer preference for higher margin floating rate mortgages.

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