Westpac NZ lifts annual profit 6%, forgoes some mortgage lending growth to protect margins

Westpac Banking Corp's New Zealand division lifted annual earnings 6% as it ceded market share in the hotly contested mortgage market to protect margins, which lag behind its local peers.

Cash earnings in the local business rose to $916 million in the 12 months ended September 30, from $864 million a year earlier, the Sydney-based parent said in a statement. Net interest income gained 8% to $1.71 billion, as the lender's total loan book expanded 7% to $69 billion.

The Australian group reported a 3% increase in cash earnings to $A7.82 billion, with net interest income up 6% to $A14.24 billion. Net profit advanced 2% to $A7.88 billion. The board declared a final dividend of 94Ac per share, payable on December 21 and taking the annual payment to $A1.87, up 3% from a year earlier.

While Westpac NZ lifted its mortgage business to $41.9 billion from $39.6 billion a year earlier, that was a smaller expansion than system growth, "as the division prioritised maintaining margins."

The local unit lifted its net interest margin four basis points to 2.31% over the year as lending competition and increased demand for less-profitable fixed-term loans offset cheaper funding costs.

That's still lower than the other major banks, with Bank of New Zealand's net interest margin at 2.39%, ASB Bank at 2.44% and ANZ Bank New Zealand at 2.48%. While BNZ and ASB widened their interest margins in their latest reporting periods, ANZ gave up one basis point due to the heightened competition for mortgages and growing use of fixed-term loans.

Westpac NZ fared better in business lending, which expanded 9% to $25.1 billion, ahead of the rest of the market, with growth in agricultural lending and food manufacturing. Deposits grew 5% to $51.9 billion in the year.

The lender took an impairment charge of $47 million in the year, up from $26 million a year earlier when it reversed some write-offs, while asset quality improved, with mortgage delinquencies beyond 90 days shrinking to 0.14% from 0.21% a year earlier, and other loans past 90 days falling to 0.55% from 0.75%.

The group is in the process of raising $A3.5 billion from retail and institutional investors to beef up its capital ratios in the face of tougher regulatory requirements. All of Australia's big four lenders have been raising capital to meet new requirements from the Australian Prudential Regulation Authority, which requires them to hold more capital on their books to mitigate the risk of losses on home loans.

Westpac's dual-listed shares were unchanged at $33.15 on the NZX, and traded at $A31.38 on the ASX before the market open.

(BusinessDesk)