Westpact NZ Reports Robust Interim Profit

1 May 2008

Westpact NZ Reports Robust Interim Profit

Highlights: (All comparisons are with 2007 interim result)
• Net operating income of $772 million, up 10%
• Core earnings of $423 million, up 17%
• Cash earnings of $244 million, up 12%
• Expense to income ratio improved 330 basis points (bps) to 45.2%

Westpac New Zealand today announced a net profit after tax of $244 million for the six months ended 31 March 2008, up 12 per cent on the same period last year. Core earnings (pre tax and impairment charges) was up 17% per cent, to $423m.

Westpac New Zealand Chief Executive Officer, Brad Cooper, described the profit result for the half year as “solid, encouraging, and reflecting well on the ability of the bank to manage the current market volatility.”

“Most pleasing has been our growth in customer numbers and improvements to customer satisfaction. Westpac has completed 18 consecutive months of customer growth, adding a net 31,000 new customers in the past six months,” Mr Cooper said.

“Innovations such as the Debitplus Visa Card and our comprehensive KiwiSaver scheme demonstrate value to our customers, which is being well received.”

Westpac New Zealand has been a big mover in recent bank customer satisfaction scores. Customer satisfaction improved at a rate over three times the average of all banks surveyed in the Roy Morgan monitoring (Dec.07 vs. Dec.06).

“The improved customer experience has driven the results announced today. Westpac delivers great service; doing that more consistently will continue to be a cornerstone of our strategy going forward,” Mr Cooper said.

Mr Cooper also highlighted discipline around cost, demonstrated by expenses up just 2%, while achieving 10% net operating income growth. The cost to income ratio improved 330bps to 45.2%.

Consistent with the slowing economy and tightening credit conditions, and recognising the pressure felt by consumer and business customers, Westpac’s impairment charges were up from $42m to $61m.

The increase in ‘watchlist’ assets reflected a prudent response and strong desire to work with our customers through this cycle, Mr Cooper said.

“Westpac New Zealand moved quickly to take a forward-thinking and coordinated approach to the changing economic environment,” Mr Cooper said. “Our balance sheet positioning is conservative, our asset quality is sound, we have a strong risk management culture and a prudent liquidity profile.”

“I am pleased to say that Westpac New Zealand is in good shape to continue to support our customers and build the next phase of our growth.”

Result details

Revenue compared to the first half of last year was up 10%, comfortably above expense growth of two per cent, resulting in a 330 basis points reduction in our cost to income ratio to 45.2%, as wage increases were offset by process and productivity improvements.

Contributing to the performance was strong balance sheet growth as customers increased their business with the major banks for both lending and deposit needs.

• Consumer Banking achieved good growth in lending (up 12%). Mortgage growth was solid although slower than the first half of 2007 as easing property valuations and high interest rates dampened demand.

• Business Banking delivered a strong performance supported by a 14% increase in business lending growth driven by agribusiness, property and corporate lending.

• Deposit volumes grew 15%, supported by the full year effect of the On-line Bonus Saver product launch and a 23% increase in term deposit balances reflecting changing customer preferences and a flight to quality.

• Non interest income declined by $5 million or 2%. Fee reductions in early 2007 impacted the current six months and proceeds from the sale of MasterCard Inc. shares were not repeated.

Net interest margin (NIM) decreased three basis points on the prior corresponding period, reflecting higher funding costs and continued migration to fixed housing loans and online deposit products. NIM was up one basis point on the half year to September 2007 driven by close attention to margin management and the success in achieving growth above average market levels in term deposits.

Ends.

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