Westpac New Zealand has posted a 17% rise in half-year cash earnings but seen its net interest margins fall, with "intense competition" and customer preference for fixed-term mortgages blamed.
Parent Westpac Banking Corporation says Westpac NZ's cash earnings for the six months to March 31 rose NZ$64 million, or 17%, to NZ$432 million from NZ$368 million in the same period of the previous financial year. The rise came as income rose and expenses fell. It was a fresh record high for half-year cash profit, topping last year's previous high.
However, Westpac NZ's net interest margin fell by four basis points in the six months to March 31, and by six basis points in the year to March 31, to 2.28%.
"Lending spreads were down due to the ongoing competitive environment and a change in interest rate expectations that has seen customers continuing to switch from variable to lower spread fixed rate mortgages," Westpac said.
The bank said the percentage of its mortgage book that's fixed had risen to 67.8% by the end of March this year from 52.1% at September 30, 2012. Banks tend to do better out of floating, or variable, mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between swap rates and fixed-term mortgages.
Net interest income rose $9 million, or 1%, to $783 million, and net operating income increased $11 million, or 1%, to $1.022 billion. Operating expenses were cut $9 million, or 2%, to $422 million. Impairment charges on loans fell $63 million, or 94%, to just $4 million. The bank said there had been a further reduction in stressed business assets and a lower volume of new impaired assets.
Impaired assets to Westpac's total committed exposure fell to 0.47% at March 31 from 0.77% at September 30 last year and 0.99% at March 31 last year.
The bank's expense to income ratio increased 54 basis points during the half-year to March 31 to 41.3%, but was down from 42.6% at March 31 last year.
Westpac group cash profit up half as much as NZ unit's; High LVR lending at 7%
The Westpac group posted an 8% rise in interim cash earnings to A$3.772 billion, and increased its fully franked interim dividend by A4 cents, or 5%, to A90 cents per share.
The Westpac group also reported a 43 basis points rise in cash return on equity to 16.5%, and boasted of a "sector leading" expense to income ratio of 41.2%.Net interest margins dropped 8 basis points from March 31 last year to 2.11%, and were down 1 basis point from September 30, with "intense competition" in the group's institutional and New Zealand businesses blamed.
Westpac NZ, meanwhile, grew mortgages by about $530 million in the March quarter based on figures released by the group today to $38.6 billion. Total net loans rose by about $830 million, or 1.3%, in the March quarter, to $63.2 billion.Total deposits grew about $700 million to $48.4 billion* with term deposits up about $230 million to $24.5 billion. Westpac NZ's deposit to loan ratio improved 93 basis points to 76.6% during the six months to March 31 and the bank said its lending was fully funded by deposits.
In the half-year the bank said its 3% mortgage growth and 2% increase in business lending were both ahead of systems growth. It said "solid growth" was recorded in home lending where borrowers had deposits or equity of at least 20%.
"Mortgages with a loan to value ratio (LVR) greater than 80% represented just 7% of new (lending) flows," Westpac said.
ANZ last week said its high LVR lending was at 5%. Both are comfortably under the Reserve Bank's 10% limit. ANZ also said, unlike Westpac, its margins had held up. ANZ reported a March half-year net interest margin of 2.32%, up from 2.31% in the September half and 2.27% in the March half last year.
Westpac NZ's funds under management rose $500 million to $4.9 million in the six months to March 31.
See the Westpac group's full release here.
*Corrects from earlier version of this story.
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