Westpac first half profit rises 3% to $A3.7b, NZ unit's earnings up 2%

Westpac Banking Corp first-half profit rose 3% to $A3.7 billion following a hefty increase in capital to meet regulatory demands that came at the cost of returns while its New Zealand division lifted cash earnings by 2 percent to $A445 million.

Group cash earnings were $A3.9 billion, also up 3 percent for the six months ended March 31, with growth slowed by higher impairment charges, mostly from additional provisions raised for a small number of larger customers coming under increased stress, the Australian company said in a statement.

An interim fully franked dividend of 94Ac per ordinary share was declared by the board, an increase of 1 percent on the previous year. It will be paid on July 4.

Chief executive Brian Hartzer said the group had delivered a sound result despite significant regulatory change, with increased customers numbers and a tighter control on costs.

Lending and customer deposit growth rose by 6 percent and 5 percent respectively, with Australian mortgages growing 8 percent.

The consumer bank delivered strong home loan and deposit growth while the business bank had sound balance sheet growth, particularly with SMEs, and stable margins, Mr HarWestpac Banking Corp first-half profit rose 3% to $A3.7 billion following a hefty increase in capital to meet regulatory demands that came at the cost of returns while its New Zealand division lifted cash earnings by 2a% to $A445 million.

Group cash earnings were $A3.9 billion, also up 3% for the six months ended March 31, with growth slowed by higher impairment charges, mostly from additional provisions raised for a small number of larger customers coming under increased stress, the Australian company said in a statement.

An interim fully franked dividend of 94Ac per ordinary share was declared by the board, an increase of 1% on the previous year. It will be paid on July 4.

Chief executive Brian Hartzer said the group had delivered a sound result despite significant regulatory change, with increased customers numbers and a tighter control on costs.

Lending and customer deposit growth rose by 6% and 5% respectively, with Australian mortgages growing 8%.

The consumer bank delivered strong home loan and deposit growth while the business bank had sound balance sheet growth, particularly with SMEs, and stable margins, Mr Hartzer said.

"However, sector headwinds contributed to a softer performance in other divisions. In particular, Westpac Institutional Bank was affected by lower net interest margins and significantly higher impairment charges related principally to four large exposures which added A$252 million to provisions," he said.

In response to regulatory changes, the group raised about $A6 billion in equity over 2015, lifting its common equity Tier 1 ratio to 10.5%, about two%age points higher than a year ago.

"While this capital has significantly strengthened the balance sheet, it has come at the cost of returns," he said. "This has led to a reduction in the return on equity and lower earnings per share."

Its New Zealand division increased cash earnings by 2% on a year ago to $A445 million, as it continues to grow in line with the market while steadily expanding its wealth and insurance business. Intense competition for new lending and a shift to lower-spread fixed mortgages has tightened margins, the bank said.

Despite deteriorating conditions in New Zealand's dairy sector, asset quality had remained sound with impaired assets-to-total committed exposure (TCE) reducing six basis points to 0.35% and consumer delinquencies remaining at near historic lows.

Westpac's New Zealand agricultural portfolio totals $A8.6 billion, up $A1 million on the previous half and accounting for 7.9% of the bank's TCE. The%age of the portfolio graded as stressed rose to 7.81% from 3.92% in the September half year, although the actual%age of impaired agricultural loans decreased slightly to .32%.

Groupwide the bank has $A14.5 billion in agricultural lending, which is down $A1.4 billion on the previous half, with 5.84% of it graded as stressed.

Westpac NZ's lending market share remained steady – it has a 20% share of consumer lending, 21% of deposits, and 16% of business lending. New Zealand lending increased NZ$2.6 billion or 4% from the previous half and 7% on a year ago.

Mortgages lending rose 3% from the previous half to $NZ43.4 billion and business lending was up 5% from the previous half to $NZ27 billion.

Mr Hartzer said he was optimistic about the outlook for the Australian economy and expected another year of sound growth with GDP increasing by about 2.8% in 2016 with the transition to a more services-based economy already well underway.

"The main threat we see is from global factors, which create fragility in businesses and regions that are more dependent on mining and mining construction," he said. "We also see signs of moderating housing investment, although housing fundamentals remain in good shape."

He said Westpac remains strongly positioned in key markets with a modest underweight position in both the New Zealand dairy and mining sectors, and those regions are more reliant on resources.

(BusinessDesk)