Westpac NZ annual earnings fall 4% as margins squeezed

Westpac Banking Corp's New Zealand division posted a 4% fall in annual earnings as lenders give up margin in the hunt for mortgage customers.

Cash earnings, the favoured measure of the Australian-owned lenders, fell to $872 million in the 12 months ended September 30 from $905 million a year earlier, the Sydney-based parent said in a statement. Net interest income edged up 2% to $1.71 billion, with the bank's New Zealand loan book expanding 9% to $75.1 billion over the period, though net interest margins shrank 12 basis points to 2.13%.

"Intense competition for new lending and a shift to lower-spread fixed-rate mortgages has compressed margins," Westpac said. "Weak financial conditions in the dairy sector drove stressed assets to TCE (total committed exposure) up 94 basis points to 2.54%."

National Australia Bank-owned Bank of New Zealand and Australia & New Zealand Banking Corp's local operations also reported declines in annual earnings last week, with both registering a 12 basis point decline in net interest margins due to  heightened mortgage competition and higher cost of raising funds overseas. Commonwealth Bank of Australia's ASB Bank division will provide a quarterly update this week, though its balance date is a June year.

Westpac's New Zealand operation also faced a 5% increase in operating expenses to $919 million as it spent more on a business transformation programme, relaunched its brand, and faced higher depreciation and amortisation costs for its software. Impairment charges for bad debts jumped 26% to $59 million, largely due to "higher stress in the dairy portfolio and a lower level of writebacks and recoveries," it said.

The New Zealand operation contributed $A812 million, or 10%, to the group cash earnings of $A7.82 billion, which was largely unchanged from a year earlier. Net profit fell 7% to $A7.45 billion, and Westpac's board declared a final dividend of 94Ac a share, payable on December 21, with a November 15 record date. That takes the annual payout to $A1.88, fully franked, up from $A1.87 in 2015.

Westpac's New Zealand mortgage book grew 7% to $45.1 billion, while business lending climbed 12% to $28.4 billion, driven by credit growth in agriculture, energy and financial services. Deposits climbed 11% to $57.5 billion.

In a presentation to investors, Westpac said its impaired dairy assets in New Zealand remain low, though there had been an increase in stress since a portfolio review at a milk price of $4.25 a kilogram of milk solids. The sector's total committed exposure had increased to $5.9 billion from $5.8 billion six months earlier, with a quarter of the portfolio 'stressed' compared to 10% as at March 31 and 4.7% a year earlier.

The dual-listed shares were unchanged at $31.20 on the NZX, and have dropped 13% this year, while on the ASX the shares last traded at $A29.71.

(BusinessDesk)