Westpac NZ annual earnings fall 4% as margins squeezed

Monday 7th November 2016

Westpac Banking Corp's New Zealand division posted a 4 percent fall in annual earnings as lenders give up margin in the hunt for mortgage customers.

Cash earnings, the favoured measure of the Australian-owned lenders, fell to $872 million in the 12 months ended Sept. 30 from $905 million a year earlier, the Sydney-based parent said in a statement. Net interest income edged up 2 percent to $1.71 billion, with the bank's New Zealand loan book expanding 9 percent to $75.1 billion over the period, though net interest margins shrank 12 basis points to 2.13 percent.

"Intense competition for new lending and a shift to lower-spread fixed-rate mortgages has compressed margins," Westpac said. "Weak financial conditions in the dairy sector drove stressed assets to TCE (total committed exposure) up 94 basis points to 2.54 percent."

National Australia Bank-owned Bank of New Zealand and Australia & New Zealand Banking Corp's local operations also reported declines in annual earnings last week, with both registering a 12 basis point decline in net interest margins due to the heightened mortgage competition and higher cost of raising funds overseas. Commonwealth Bank of Australia's ASB Bank division will provide a quarterly update this week, though its balance date is a June year.

Westpac's New Zealand operation also faced a 5 percent increase in operating expenses to $919 million as it spent more on a 'business transformation' programme, relaunched its brand, and faced higher depreciation and amortisation costs for its software. Impairment charges for bad debts jumped 26 percent to $59 million, largely due to "higher stress in the dairy portfolio and a lower level of writebacks and recoveries," it said.

The New Zealand operation contributed A$812 million, or 10 percent, to the group cash earnings of A$7.82 billion, which was largely unchanged from a year earlier. Net profit fell 7 percent to A$7.45 billion, and Westpac's board declared a final dividend of 94 Australian cents per share, payable on Dec. 21, with a Nov. 15 record date. That takes the annual payout to A$1.88, fully franked, up from A$1.87 in 2015.

Westpac's New Zealand mortgage book grew 7 percent to $45.1 billion, while business lending climbed 12 percent to $28.4 billion, driven by credit growth in agriculture, energy and financial services. Deposits climbed 11 percent to $57.5 billion.

In a presentation to investors, Westpac said its impaired dairy assets in New Zealand remain low, though there had been an increase in stress since a portfolio review at a milk price of $4.25 per kilogram of milk solids. The sector's total committed exposure had increased to $5.9 billion from $5.8 billion six months earlier, with a quarter of the portfolio 'stressed' compared to 10 percent as at March 31 and 4.7 percent a year earlier.

The dual-listed shares were unchanged at $31.20 on the NZX, and have dropped 13 percent this year, while on the ASX the shares last traded at A$29.71.

(BusinessDesk)

BusinessDesk.co.nz

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