Westpac NZ's annual earnings buoyed by turnaround in bad dairy debt

Westpac Banking Corp's New Zealand division boosted annual earnings 9.5% as the recovery in global milk prices eased stress on farmers and saw a turnaround in the lender's provisioning for bad dairy debt.

Cash earnings, the preferred measure of the Australian-owned banks, rose to $970 million in the 12 months ended September 30 from $886 million a year earlier, the Sydney-based parent said in a statement. The lender's operating income increased 0.2% to $2.25 billion, lagging behind a 0.9% rise in expenses to $963 million, reflecting tighter margins for the bank. However, Westpac NZ wrote back $76 million from previously impaired loans, turning around a charge of $59 million a year earlier.

"We've continued to support our farming customers through investment in more frontline rural bankers," Westpac New Zealand chief executive David McLean said. "This has seen an increase in our agri-business lending and deposits of 4% and 17% respectively against the prior year."

Westpac New Zealand is in the second year of a transformation programme to overhaul its customer services and said it generated $11 million of productivity benefits from increased customer self-service and the restructuring. The local bank cut its national branch network to 169 as at September 30 from 189 a year earlier, while increasing the number of smart automatic teller machines to 54 from 42.

The New Zealand division contributed 11% to the Australian group's cash earnings of $A8.06 billion, which increased 2% as the lender focused on strengthening its balance sheet in the face of greater capital requirements being demanded by the Australian regulator. The board declared a final fully-franked dividend of 94Ac per share, payable on December 22, and taking the annual return to $A1.88, unchanged from a year earlier.

Westpac New Zealand lost market share in both consumer and business lending in the year, at 19% and 16% respectively, down from 20% and 17% a year earlier. Its share of deposits was also down one percentage point to 19%.

Still, the local unit's loan book grew 2.9% in the year with net loans of $77.3 billion and term deposits rising 3% to $30 billion. Of that, home loans expanded 4% to $46.9 billion and business lending increased 0.7% to $28.6 billion.

The quality of Westpac's New Zealand loan book also improved, with the total stressed assets to total committed exposures falling to 2.06% from 2.54% a year earlier.

Westpac New Zealand's margins shrank 13 basis points to 2.02% in the year due to heightened competition for deposits and more expensive wholesale funding, it said.

Shares in dual-listed Westpac were unchanged at $37.01 on the NZX, having gained 9.2% this year.

(BusinessDesk)