Westpac lifts profit 15 per cent to $555 million

Monday, 6 May 2019

Financial Markets Authority chief executive Rob Everett and Reserve Bank governor Adrian Orr deliver the findings of their joint review into the conduct and culture of banks in New Zealand. First published in 2018.

Westpac has reported profit of $555 million in the six months to March 31, up 15 per cent on the same period a year earlier.

Its net operating income of $1.25 billion in the half was up 6 per cent.

Excluding the proceeds of the sale of its stake in Paymark, cash earnings were up 7 per cent.

Chief executive David McLean said it was probably a record for the bank but, for a business of Westpac's size, was not unreasonable. It had return on equity of 13 per cent.

He said it had benefitted from its ongoing focus on customer outcomes, despite a maturing economic cycle and a changing banking environment.

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'Our purpose is to help our customers financially to grow a better New Zealand. That starts with working to ensure we're delivering great service and great outcomes for customers each and every time they interact with us,' he said.

Westpac has cut a range of fees, which reduced income by $60m over the past two years, he said. That was likely to continue, driven by customer demand and the emergence of new technology that allowed processes to happen faster and more efficiently.

As the amount of money in KiwiSaver grew, economies of scale could be achieved on fees, he said.

Excluding the proceeds of the sale of its stake in Paymark, cash earnings were up 7 per cent.

'The low-margin environment and evolving regulatory outlook will present challenges into the second half of the year, but we have confidence in the fundamentals of the economy, and our capability to execute in response to change.'

The economy was strong with low levels of bad debt, he said.

McLean said the low-interest environment had benefited borrowers, with first-home buyers particularly active.

'In the last six months, credit growth has slowed across the industry despite some regional variations in the housing market. We've responded by focusing our business on high quality deposits and lending, in the process helping more New Zealanders to save and own their own home.

'In March, Westpac NZ became the first bank to launch a dedicated mortgage product which streamlines construction home loans for prefabricated builds. That's important as prefabricated builds generally cost less and can be built faster helping with affordability and housing supply.'

McLean noted that the banking environment was changing, with credit growth slowing and increasing regulatory requirements.

He said the bank was engaging constructively with the Financial Markets Authority and Reserve Bank, including in relation to the recent review of bank conduct.

But he said if the Reserve Bank's proposals to require banks to hold more capital were enacted as currently proposed, New Zealand's economy would be paying for too much protection given the relatively low risk in a sound banking sector.