It was a year of two halves for Westpac, mirroring the wild ride the rest of the economy has been on.

Westpac New Zealand chief executive George Frazis told NBR one of the major features of the year was the difference in results between the six months to March and the six months to September.

And, this, he said, was tied to the health of the New Zealand economy in general.

“It’s really been a performance of two halves for us,” he said. “In the second half we started to see some growth and momentum.”

He said the commercial property sector, which accounted for a large part of Westpac’s $402 million increase in loan impairment provisions, had been the “first chapter to experience distress” when recession hit.

However, he said the sector was now stabilising.

Mr Frazis also saw positive signs in the residential property sector due to the housing shortage and the increase in net migration.

Exposure to the struggling commercial property sector has been blamed for much of the $402 million increase in impairment charges that has eaten in to Westpac New Zealand’s bottom line.

Cash earnings for the year to September 30 dropped by 50% compared to the previous year, from $473 million to $236 million.

Operating profit before tax was down by a similar amount, sliding 53% to $329 million.

Westpac’s core earnings were up 4% from $866 million to $901 million but this was more than cancelled out by impairment charges, which increased 236% from $170 million to $572 million.

Chief executive George Frazis said the impairment charges were mostly related to commercial property exposures but the bank’s provisioning approach was prudent in light of the weakened operating environment.

Net operating income increased by 4% to $1.642 billion as net interest income rose by 7% to $1.235 billion but non-interest income dropped 4% to $407 million.

But expense growth was held to 3%, which Mr Frazis said was a result of good management disciplines.

As a result the bank’s expense to income ratio dropped 20 basis points to 45.1%.

Term deposits increased in value from $13.5 billion in 2008 to $16.0 billion this year but other deposits fell by 7% to $12.8 billion; total deposits were up 6% to 28.8%.

Loan growth was slower than deposit growth, with net loans up 2.8% to $47.7 billion, down from the 9.5% growth in the previous year.

Much of this increase came from mortgages, with business and other lending relatively unchanged.

Mr Frazis said the slowdown in credit growth was a result of deleveraging.

Consumer delinquencies had improved over the last quarter but he noted that risks remained in these areas due to rising unemployment.

He said the overall result was disappointing but initiatives in the second half of the financial year were contributing to improved momentum.

“I’m confident that the significant work done on priority areas within the bank sets us up well for sustainable growth within an economy that is showing signs of recovery.”

The result continues the recent trend of the New Zealand divisions of Australian banks weighing down their parent companies’ performance.

Westpac Group’s annual result announcement said Westpac’s New Zealand division “has had a challenging and disappointing year given the weak economic environment.”

But Westpac New Zealand's result was not affected by the long-running tax avoidance case brought against it by the IRD; last night Westpac announced it would appeal the $900 million ruling against it.

The Westpac New Zealand entity did not exist at the time of the structured finance transactions in question and therefore the case is against Westpac Banking Corporation.