Westpac reports $964 million profit as boss pockets $2m

Monday, 4 November 2019

Westpac's New Zealand chief executive earnt almost $2.5 million this year, the bank's annual report shows.

David McLean received A$2.285 million (NZ$2.455m) for the year's work, compared to A$2.27m last year.

He was one of the few executives in the group to get a pay rise year-on-year, group chief executive Brian Hartzer's pay fell from A$6.57m lst year to A$5.05m. Most executives received less in short- and long-term performance-based incentives.

The New Zealand arm of the bank reported a 3 per cent lift in net profit to $964m from $936m last year.

* Westpac's gender pay gap is 30.3 per cent, says chief executive

* Westpac lifts profit 15 per cent to $555 million**

At the same time, cash earnings lifted 3 per cent to $1.042 billion, boosted by the sale of Paymark.

McLean said business conditions had deteriorated in the second half of the reporting period based largely on uncertainty about the outlook into next year.

'Although significant risks exist globally, the local economy remains in reasonable health, our business is fundamentally sound and our balance sheet continues to be well managed.'

He said low interest rates were providing opportunities for first-home buyers and others looking to make a move in the property market.

'We've never seen interest rates this low in New Zealand. It helps with housing affordability and business investment, and presents a great opportunity for existing borrowers to pay down debt.'

In 2019, Westpac published its own gender pay gap figures to prompt conversation. Since this video was made, Westpac's gender pay gap has dropped from 30.3 per cent in 2019 to 29.1 per cent in 2020.

However, low rates had also meant savers had reduced returns.

He said, were rates to fall any further, there was a risk that savers would switch out of bank deposits in favour of other investments in greater numbers. That would increase their risk but also mean the bank would have to turn to more to wholesale markets for its funding.

He said low interest rates also compressed the margin the bank earnt, which meant lower returns for shareholeders.

Home loans and business lending had grown 5 per cent over the year, while customer deposits had grown 4 per cent.

The bank's net interest margin, the difference between what it charges borrowers and what it pays savers, was 2.16 per cent in the year, down from 2.24 per cent last year.

Westpac NZ had continued to focus on simplifying its business by reducing or removing 13 fees in the past year and removing five products from service or sale. It was also proactively identifying and remedying historical issues with some products and services.

'New complaints are being resolved faster and we've stepped up our training in achieving great outcomes for customers, with a second wave of mandatory workshops rolled out to employees – including non-customer facing roles – in the past few months.'

McLean said Westpac NZ had continued to work constructively with the Financial Markets Authority and Reserve Bank of New Zealand, in relation to the regulators' recent conduct and culture reviews of the banking and life insurance sectors.

Westpac recently switched to electric cars.

He said the scrutiny that had been put on the sector had been fair and Westpac had begun to scrutinise its own business, based on what was happening offshore, before the regulators took action.

He said what had been identified was that banks were relying on people doing th right thing rather than having processes in place to ensure that things could not go wrong.

McLean said pressure on competitors over the past year, particularly on ANZ, had not made much impact on the bank.

'My personal view is just do the right thing and behave properly. Hopefully karma means something good will happen at some point… you don't see big shifts in market share when something good or bad happens to a bank.'

McLean said he had received notification from the Reserve Bank in late October that Westpac New Zealand had satisfied Section 95 requirements relating to internal credit model methodologies. As a result, it would retain its accreditation to use the relevant internal capital models, and would no longer be subject to a two percentage point capital regulatory overlay.

'We have worked constructively with the Reserve Bank on this issue in some detail and are pleased with the outcome.'

He was relaxed about the potential for tighter capital rules to be revealed by the Reserve Bank next month. He said the bank had received a lot of feedback and had done a lot of work on its proposals. 'They've had a wealth of information to allow them to make a decision. We've done evertyhing we can to help them make a good decision.

'You can't worry about what you don't know.'

Funds in the Westpac KiwiSaver Scheme had increased by 15 per cent year-on-year, from $6.1 billion to $7 billion at the end of September. The average balance increased 16 per cent to $17,806.

Fees for Westpac KiwiSaver Scheme members will drop from December 1.

The monthly administration fee would drop from $2.25 to $1 and the management fee on all open funds would be reduced by 0.1 percentage points, McLean said.