Westpac NZ Reports Solid Performance In 2005

Westpac New Zealand Reports Solid Performance In 2005 Financial Year

Westpac New Zealand today reported a solid NZ$611 million operating profit for the financial year ended 30 September 2005, underpinned by strong growth in business lending and retail deposits, prudent expense management, steady improvements in customer satisfaction levels, and a strategic decision not to participate in the mortgage rate ‘war’.

The 2005 result represents a 6% increase in normalised operating profits, from $539 million to $569 million, once non-recurring items are excluded.

A primary driver of the result was Westpac New Zealand’s retail banking operation, delivering banking and wealth management products to New Zealand businesses and consumers, which recorded a stronger lift in operating profit of 8%.

Ann Sherry, Chief Executive of Westpac New Zealand, said the FY05 result is a solid one, demonstrating sustainable growth underpinned by a diversity of factors.

“This year has been intensely competitive, as margins were heavily compressed for all of the major New Zealand banks, particularly in the housing market. However, we’ve stayed confident in our position to market, and delivered stable and sustainable growth,” Ann Sherry said.

Ann Sherry cited very strong growth in Westpac’s business banking as a key driver of the result, propelled by a 19% increase in business lending.

“Agribusiness, property finance and corporate and transactional banking were particularly strong, with these diverse areas of growth helping Westpac to withstand some of the margin pressure in the housing market in 2005.

“Above-system deposit growth has also resulted in market share increases for Westpac New Zealand.

“Westpac’s high interest internet-based account, ‘Online Saver’, has had a very strong uptake. This product was launched in June 2005, and exceeded expectations with over $1.3 billion in balances by year end, of which almost half the flows were new business,” Ann Sherry said.

Westpac’s housing book also grew by more than 13% in the year to September, even as Westpac took a strategic decision to avoid some of the more aggressive, and unsustainable, pricing strategies in the New Zealand market.

Expenses have remained relatively flat.

The unwinding of the structured finance transactions, and the retail funds outflow from the New Zealand Wealth Management business, have masked the strength of Westpac New Zealand’s underlying performance.

In a year of many highlights, Ann Sherry cited improved customer satisfaction ratings as an important success.

“The past year has seen a 5% lift in our customers rating us ‘very good’ or ‘excellent’. Although customer satisfaction levels are still not where we want them to be, it’s pleasing Westpac has continued to improve.

“Customer satisfaction will continue to be a central focus for Westpac as we know that satisfied and loyal customers are critical to sustaining the solid growth we have enjoyed. The creation of additional customer-facing positions over the past year highlights this commitment.”

Westpac has continued to receive independent confirmation of the high quality of its products, with five star Cannex ratings for its home loans and more of its credit cards than any other bank.

Along with a lift in customer satisfaction, Westpac also reported its highest ever levels of employee commitment, according to its annual staff survey. The People Leader Index rose to 79%, and employee commitment to 72%, both measures putting Westpac on a par with global high-performing organisations.

Westpac has also reinforced its market leadership in the community activity area, through the introduction of employee volunteer days; a ‘matching gifts’ scheme in which employee donations to charities are matched dollar for dollar; and the continued sponsorship of the Westpac rescue helicopters.

Ann Sherry also commented on progress towards the local incorporation of Westpac in New Zealand.

“On 27 October 2005 Westpac received in-principle agreement from the Reserve Bank of New Zealand on Westpac’s proposed incorporation model. We are about to commence consultation on the necessary legislation, and are working towards being locally incorporated by the end of 2006.

“The past year has seen solid growth for Westpac in an environment of intense competition. Through a focus on further raising customer satisfaction levels, improving quality and efficiency, leadership, and building on the strong performance of our business banking and retail deposit areas in FY05, Westpac is well positioned to continue making gains, even as the domestic economy shows signs of cooling,” Ann Sherry said.

Year to Year to 30 September 2005 - 30 September 2004 $m $m

Net interest income 1,094 1,097

Non-interest income 593 591

Non-interest expense (726) (731)

Core earnings 961 957

Bad and doubtful debts (44) (39)

Underlying performance 917 918

Income tax expense and minority interests (306) (301)

Operating profit after income tax expense 611 617

NZ structured finance transactions now terminated (39) (65)

Wealth management recoveries (3) (13)

Normalised operating profit after income tax expense 569 539

ENDS

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