Westpac announces half year cash earnings of $202m

Media Release 3 6 May 2009

Westpac New Zealand announces half year cash earnings of $202m

Summary: (All comparisons are with the 2008 First Half result)

Cash earnings $202m, down 15% Core earnings $471m, up 13% Expense to income ratio 43.7%, improved from 46.2% Total deposits $28.0b, up 6% Total lending (net of provisions) $47.1b, up 4%

Half Year Result

Westpac New Zealand today announced cash earnings of $202 million for the half year ended 31 March 2009, down 15 per cent on the same period last year, impacted by an increase in impairment charges due to the continued deterioration in the New Zealand economy.

Core earnings (pre tax and impairment charges), however, rose 13% to $471m, reflecting increased growth in our business combined with disciplined expense management.

Westpac New Zealand’s Chief Executive, George Frazis, announcing his first set of results since joining in March, said the half year result reflected an “unprecedented set of external circumstances”, and he expected economic conditions to continue to be challenging for some time.

“In the circumstances this is a sound result that our customers and other stakeholders should welcome,” Mr Frazis said. Expenses for the March half year rose 2%, and with sound revenue growth Westpac New Zealand’s expense to income ratio improved 250 basis points to 43.7%. “Disciplined management has Westpac New Zealand well placed to weather the current conditions. A strong productivity program will provide headroom for investment in specific areas of focus, such as increasing customer-facing roles,” Mr Frazis said.

Impairment charges increased by $123m to $184m, with the continued deterioration in the New Zealand economy impacting businesses and households.

Mr Frazis said Westpac New Zealand has responded positively to the economic challenges through investment in service teams that work with customers facing repayment difficulties. He noted that, as the volume of sales activity had eased in some areas, flexible operating arrangements have seen frontline effort re-directed to contact programs designed to assist customers in managing early-stage financial stress.

Other highlights of the first half result included business lending growing 9%, mainly through agri, infrastructure and small/medium enterprises.

“This is a particularly good outcome for the business sector during a period when banks globally have been facing difficulties as a result of the global financial crisis,” Mr Frazis said.

“We have provided an additional $350m over the last 6 months to help small businesses invest, grow and protect jobs. This is the benefit of having a strong, highly-rated local bank in New Zealand.”

Deposits grew 6%. Mr Frazis noted that this strong growth was achieved in spite of increased competition for retail term deposits and an altered playing field with the introduction of the government’s retail deposit guarantee scheme. Housing lending grew 3%, reflecting a slowdown in mortgage growth and consistent with the general trend of households looking to reduce debt levels in the current environment.

Mr Frazis said customer growth had continued, at an annualised rate of around 3%, in the first half of the year, with particular success in new product bundling offers, including its Westie Pac student package and its Bizpac small business package. Strategic Progress

“Westpac New Zealand remains determined to grow, and we will look to achieve this through a renewed focus on our customers and investing in our front-line capability,” Mr Frazis said.

“We have refined our vision, and reset our key priorities around better meeting customer needs. This will include initiatives such as giving our local bankers more authority to make decisions quickly, allowing them to more easily assist customers. “Westpac New Zealand has made a commitment to having over 50 new business bankers in place around the country by the end of the financial year, as well as a further 70 frontline-facing staff in agri and consumer roles in the next 12 months.” Mr Frazis said considerable work was also being done to enhance the customer experience by streamlining bank processes such as lending decisions.

Outlook The first half of the 2009 financial year has seen significant and rapid change, including further stress in the global financial sector and a material and more broadbased deterioration in global economic activity.

There is little indication that wholesale funding costs are easing from their current high levels and the cost for retail deposits is increasing.

While it appears some of the severe stresses of the financial crisis have now stabilised, the more dominant impact on Westpac New Zealand will be the size and duration of the recession.

There will be three main impacts. Firstly, slower loan growth is expected, in part from lower consumer and lower business investment. Also, both consumers and businesses are expected to use the opportunity to de-leverage their balance sheets. Finally, it is expected that more customers will come under pressure as the effects of the slowing activity become more widespread.

“We are seeing more pressure across our business customers and expect consumer stress to grow as unemployment rises. As a result we do expect impairment charges to remain at a high level throughout Second Half 2009 and into 2010,” Mr Frazis said.

Mr Frazis said that Westpac New Zealand is well positioned to continue to support customers through this period.

WESTPAC NEW ZEALAND HALF YEAR RESULTS MARCH 2009

New Zealand operations provide banking and wealth management products and services to New Zealand consumer and business customers. The New Zealand wealth business includes Westpac Life and BT in New Zealand. The results do not include the earnings of our New Zealand Institutional Bank. All figures are in New Zealand dollars (NZ$).

% Mov't % Mov't NZ$m Half Year March 09 Half Year Sept 08 Half Year March 08 Sept 08- Mar 09 Mar 08- Mar 09 Net interest income 622 590 568 5 10 Non-interest income 214 220 204 (3) 5 Net operating income 836 810 772 3 8 Operating expenses (365) (359) (357) (2) (2) Core earnings 471 451 415 4 13 Impairment charges (184) (109) (61) (69) large Operating profit before tax 287 342 354 (16) (19) Tax and minority interests (85) (108) (115) 21 26 Net profit after tax/cash earnings 202 234 239 (14) (15) Economic profit 54 102 111 (47) (51) Expense to income ratio (%) 43.7% 44.3% 46.2% 60bps 250bps $bn $bn $bn Deposits Term Deposits 14.1 13.5 13.0 4 8 Other 13.9 13.7 13.5 1 3 Total Deposits 28.0 27.2 26.5 3 6 Net loans Mortgages 31.4 31.0 30.5 1 3 Business 14.0 13.8 12.9 1 9 Other 1.7 1.7 1.7 - - Net loans 47.1 46.5 45.1 1 4 Total assets 48.4 47.7 46.3 1 5 Funds under management 2.0 2.0 1.9 - 5

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