Westpac NZ's first-half earnings rise as bad debt reversals offset shrinking margins

Westpac Banking Corp's New Zealand unit eked out a 2 percent gain in first-half earnings as a reversal in charges on bad debt offset shrinking margins that reflect competition for depositors.

Cash profit, the preferred earnings measure of the Australian-owned banks, rose to $462 million in the six months ended March 31 from $452 million a year earlier, the Sydney-based lender said in a statement. Net interest income shrank 1 percent to $838 million, even as the bank's net loans grew 7 percent to $76.5 billion. That outpaced a 32 percent expansion in total deposits to $56.8 billion, while the lender's operating costs rose 2 percent to $468 million. 

Westpac New Zealand's net interest margin shrank faster than local rivals ANZ Bank New Zealand and Bank of New Zealand, falling 22 basis points to 1.96 percent, compared to a 10 point fall to 2.3 percent at ANZ and a 15 point decline to 2.15 percent at BNZ. 

Still, Westpac's New Zealand unit registered a $36 million gain from a turnaround in bad debt charges, compared to a $9 million bill a year earlier, which it said was due to "the work-out and write-back of one facility combined with the improved outlook for the dairy industry". 

"We saw growth in targeted market sectors, including Auckland and millennials, and it is good to see a continuing recovery for many of our dairy farming customers, which is reflected in our significantly improved impairment position," Westpac New Zealand chief executive David McLean said in a statement. "At the same time, we experienced reduced net interest margin: a result of strong lending competition and increased funding costs."

Westpac's New Zealand division contributed A$435 million to the group's cash earnings of A$4.02 billion, up 3 percent from a year earlier. Chief executive Brian Hartzer said the institutional division was the group's stand-out performer as it benefited from stronger credit quality, more customer transactions and a strong result from its markets business. 

The Australian group's board declared a fully-franked interim dividend of 94 Australian cents per share to be paid on July 4 and unchanged from a year earlier. The dual-listed shares rose 0.4 percent to $36.55 on the NZX, having gained 7.4 percent so far this year. 

Westpac's New Zealand expense-to-income ratio increased to 43.4 percent from 41.8 percent a year earlier after overhauling its systems to boost the ease of digital access for its customers. That's seen it close a net 19 branches in the six months ended March 31, with full-time equivalent staff numbers cut by 153. The number of digitally active customers rose 5 percent to 758,000 from a year earlier with online transactions climbing 9 percent to 35.9 million. 

The bank's customer numbers increased to 1.36 million from 1.35 million a year earlier, while the number of complaints fell to 11,400 from 13,400. 

(BusinessDesk)