Westpac Performs Strongly In Slowing Economy

4 May, 2006

Westpac Performs Strongly In Slowing Economy

Solid lending and deposit growth, strong credit quality and improved customer satisfaction levels all contributed to a 14% lift in Westpac’s normalised operating profit to $333 million for the half-year ended 31 March 2006 once non-recurring items and the impact of IFRS adjustment items are excluded, Westpac chief executive Ann Sherry announced today.

This result was largely driven by a strong performance by Westpac Institutional Bank, while our core retail business grew by 4% during a period when the New Zealand economy began to cool markedly. “With economic growth in New Zealand having slowed from its highs in 2004 and 2005, this result shows that our business strategy is a sound and sustainable one. We have come through the so-called mortgage price war better than expected, and are positioned well for further momentum,” Ann Sherry said.

While housing lending volumes increased by 13%, there was a 25 basis point decline in the net interest margin. The main driver of this fall was a 15 basis point decline in housing spreads, as the mix of fixed and floating lending shifted further towards fixed in a highly competitive lending environment.

“This underlines the importance of staying resolutely focused on customer retention and driving further increases in customer satisfaction.

“A 12% increase in business lending is a good result given that the economy had nil growth in the last quarter of 2005.” Deposit volumes increased solidly, up 5% to $28.2 billion, supported by growth in Westpac’s high-performing Online Saver product. Growth in operating expenses has been kept to 2%. Customer-facing staff and salary increases were offset by reductions in discretionary spending across the business and lower outsourcing costs.

Ann Sherry said Westpac’s strong focus on customer satisfaction, including the appointment of 145 new front-line staff, had borne fruit. “In the latest benchmark AC Neilsen Consumer Finance Monitor survey, covering the March 2006 quarter, Westpac was the only one of the major banks to record an increase in the percentage of respondents rating overall service as ‘excellent’ or ‘very good’.

Our rating now stands at 60%, not far off the leading bank.”

Trading and other opportunities arising from volatility in the New Zealand dollar spurred a strong performance by Westpac Institutional Bank’s local operations, with trading income up 37% compared with the March 2005 half-year. The quality of Westpac’s lending book remains strong, with housing delinquency and impaired asset levels improving over the past 12 months.

An increase in income tax expenses, from $92 million in the half-year to March 2005 to $162 million in the current period, is primarily a result of the unwinding of structured finance transactions in the prior period. The effective tax rate for the half-year to March 2006 was 32.6%.

Ann Sherry said Westpac continued to demonstrate its commitment to corporate responsibility with a number of initiatives.

These include the installation of ‘talking’ ATMs in the five major centres, and the raising of more than $500,000 in Westpac’s annual chopper appeal in support of rescue helicopter trusts around New Zealand. “In the next few months we will also roll out a financial literacy programme, initially to Westpac staff and later to customers and the wider community.

Based around the theme of ‘managing your money’, the programme will offer easy-to-follow, practical advice on managing personal finances. This is particularly important in a slowing economy and to help all in our community manage their money better.” Other highlights from the half-year include external recognition of Westpac as a preferred place to work, in a survey carried out by the Hays group.

“The local incorporation of Westpac is proceeding smoothly, following the introduction to Parliament of the Westpac New Zealand Bill, and is expected to be complete by 1 November,” Ann Sherry said.

ENDS

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