Westpac profit drops 38 per cent as Covid-19 impact hits

Monday, 2 November 2020

Westpac New Zealand's profit after tax has taken a 38 per cent hit from Covid, down to $649 million in the year to September 30.

Its income fell and operating expenses increased 7 per cent and it also took an impairment charge of $320m.

Its net interest margin fell to 1.97 per cent - that is the difference between what the bank has to pay for money and what it charges lenders.

“Almost every customer has been financially affected by Covid-19, whether that’s directly through losing a job or taking a hit to their business revenue, or indirectly through lower interest rates or KiwiSaver volatility,' said chief executive David McLean.

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“Being there alongside our customers and our communities with help at such a critical time has been extremely fulfilling for our teams and is why our people show up for work every day.”

McLean said he was confident New Zealand remained well-positioned for recovery and Westpac NZ’s healthy balance sheet would allow it to support customers and the economy.

“Over the past year we’ve expanded our residential lending by 7 per cent and have helped first-home buyers into 5343 homes.

“We’ve increased our business lending by 3 per cent and have been one of the few banks to expand our lending to farmers and agriculture.

“We are open for business and stand ready to support Kiwis’ dream of owning a home or expanding their business.”

But he said the drop in earnings showed the effect of the pandemic.

“We’ve provisioned for an increase in expected lending losses due to changing economic conditions, largely driven by Covid-19. However, our underlying asset quality remains strong.

“At the same time we’re investing to become a more resilient and modernised business to enable us to continue meeting the needs of our customers.”

McLean said Westpac had provided mortgage and loan repayment assistance to 21,959 customers and had lent $9 billion in new and restructured business lending.

“The collaborative and collective response from the Government, regulators and banks has provided confidence and certainty to customers in a time of turmoil,” McLean said.

McLean said Westpac NZ was prepared for a period ahead in which interest rates could drop to record low levels.

“This may compress bank lending margins but we’re in robust shape and are well equipped to weather those pressures.

“A key concern is balancing the needs of borrowers and savers. We want to make sure we’re passing on value to borrowers, who will appreciate reductions in repayments if their incomes have been reduced, but we also need to provide value to depositors, who provide us the funds to lend and could feel the squeeze on their savings as a result of lower interest rates.”

McLean said there had been a significant increase in the number of customers banking digitally or through the contact centre since Covid-19 hit.

“That means our branch teams are now operating more flexibly. In some locations our opening hours are reduced but our team are on-site, emailing and calling our customers, reflecting the way people are choosing to bank with us.”

McLean said the bank remained focused on upgrading technology, fixing legacy issues and delivering new innovative products and experiences. This work had made good progress, despite the disruption caused by Covid-19.

Westpac NZ had also rolled out a new merchant fee pricing structure that would lead to savings for more than 10,000 small and medium businesses, he said.

“A small retailer like a café owner with small transaction volumes will pay only 3 cents when processing a debit contactless payment for a $5 coffee. That may have been 10 to 15 cents under previous pricing.”

Customer deposits grew 10 per cent over the year.