8 May 2023

Westpac New Zealand's first half profit is down a third

10:33 am on 8 May 2023

Photo: RNZ / Marika Khabazi

Westpac New Zealand's first half profit is down a third on the year earlier, with a drop in revenue and an increase in expenses, along with provisions for bad debts.

Westpac's New Zealand chief executive Catherine McGrath said the gain from last year's sale of Westpac Life was not repeated in the latest result, while an increase in impairment provisions was made against a backdrop of the financial impacts of severe weather in the North Island, which had contributed to the decrease in net profit.

Key numbers for the six months ended March compared with a year ago:

  • Net profit $426m vs $640m down 33%
  • Underlying profit excluding one time items $467m vs $497 down 6%
  • Revenue $1.37b vs $1.4b down 2 percent
  • Expenses $624 m vs $564m up 11 percent
  • Net interest margin 2.10% up 14 basis points.

Excluding one-time items, McGrath said the bank's underlying performance was stable.

"We've seen some really positive momentum during the reporting period," she said.

Customer deposits rose 2 percent to $79.8m, with total loans up 4 percent to $98.2m, with mortgage lending up 5 percent and business lending up 4 percent.

"We're in a stable and well-capitalised position and are well-placed to support our customers."

The bank's impairments of $154m, compared with a benefit of $10m in the year earlier, given a deterioration in the economic outlook and early cycle consumer delinquencies.

McGrath said there was not yet clarity about several key issues for homeowners and businesses affected by Cyclone Gabrielle and flooding in the North Island.

"As soon as the outlook is clearer, we will be able to work with our customers to agree the best way we can support them over the longer term. Due to the current uncertainty, we have made a weather event impairment overlay."

Bank prepares for hard landing risk

She said the impairment charge also reflected the deteriorating economic outlook.

"Our economists are forecasting a recession this year.

"The global outlook remains uncertain and funding markets are moving around. In addition, inflation and consumer spending remain high, increasing the risks of a hard landing.

"The rising cost of living has squeezed households and interest rates have risen quickly. While we are not currently seeing significant numbers of customers requiring hardship assistance, demand is slowly increasing, and we expect it to rise further as the outlook worsens."

McGrath said the bank was continuing to focus on risk management, governance and other other issues for identified for improvement by the Reserve Bank.

The increased investment in risk and regulatory projects helped drive up operating expenses by 11 percent to $624 million, including a 12 percent increase in full time staff to support these projects as well as technology.

The Australian based Westpac Group reported a 22 percent increase in first half net profit to A$4 billion, with revenue up 8 percent to A$11b.

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