Digital investment enhances the customer experience

Solid growth maintains momentum

Digital investment enhances the customer experience

Westpac New Zealand1Summary financial points – 1H15 vs 1H14
Cash earnings2 of $441 million, an increase of 2%
Core earnings increased 7%, to $640 million
Good Lending growth of 5% to $66.6 billion
Deposit3growth of 6% to $51.5 billion, maintaining a peer leading
deposit to loan ratio of 77.3%
Wealth balances increased 23% to $7.9 billion

Westpac New Zealand has posted cash earnings of $441 million up 2% on the same period last year.

The result was driven by core earnings growth of 7% partly offset by increased impairments coming off a very low first half 2014 charge of just $4 million.

Westpac Chief Executive Officer David McLean said it was a solid first half performance built on margin management and targeted lending and deposit growth.

“We have focused on balanced growth in targeted areas and continue to invest in digital channels and self-serve capability to make it easier and faster for customers to manage their finances,” Mr McLean said.

“Home lending and business lending are up as are deposits and we have a peer leading deposit to loan ratio of 77.3%. Overall, this puts the bank in a strong position.”

Home lending increased 5% and was in line with system4 growth with good growth in the less than 80% LVR category. Greater than 80% LVR lending now accounts for 6.6% of new flows, below the 10% regulatory limit. Business lending increased 5% driven by ongoing Agri market share gains, with growth of 9%.

Deposits growth of 6% has funded over 90% of lending growth. Transactional and at-call accounts were up 10%, primarily in online deposits.

Net interest margin (NIM) improved one basis point to 2.29% compared to 1H14. Underlying customer margins, excluding Treasury, improved three basis points to 2.53%. This improvement was driven by reduced wholesale funding costs and disciplined margin management. Deposit spreads improved due to active rate management and ongoing portfolio optimisation which more than offset reduced lending spreads which were impacted by continued market competition.

Wealth balances were up 23% to $7.9 billion driven by continued growth in KiwiSaver balances up 33%. The number of Westpac New Zealand customers with a Wealth product increased 160bps to 28.0%. A highlight was the Westpac KiwiSaver Scheme5 being rated Platinum by Super Ratings across a range of services including investment performance, fee and charges, member servicing, administration and governance.

Mr McLean said the continued focus on the customer being at the heart of the business remains a key driver for ongoing investment in digital channels and self-serve capability.

A key landmark in the digital strategy was the launch of the bank’s new internet and mobile banking platform, Westpac One, in February. Westpac One delivers customers the same experience on whatever device they choose to use - desktop, tablet, smartphone. Over 500,000 customers have been migrated to date and since February digital lending applications:

•Are up 52% on average across cards, personal loans and home lending;
•Now represent 40% of all applications made online; and
•88% are conditionally approved instantly.

Westpac New Zealand now has 143 Smart ATMs, which is the largest fleet in the country, taking one third of all physical deposits, of which nearly 35% were outside normal business hours.

Westpac was named the country’s best retail bank in the 2015 Asian Banker Excellence in Retail Financial Services Awards as well as the “Best Bank in NZ” by the Global Finance Magazine World’s Best Banks Awards. Additionally, in April 2015, Canstar recognised Westpac as the best online bank in New Zealand.

New Zealand's broad-based economic expansion has continued, although the pace of growth has moderated slightly from the peak. Lower dairy prices will present a real challenge for some regions over the year ahead. However, the booming construction sector – not just in post-quake Canterbury – continues to support economic growth. Westpac New Zealand is well placed to grow and support all of our customers through the opportunities and challenges of this economic environment.

Westpac is also looking to capitalise on its new airpoints™ partnership with Air New Zealand. This will provide customers more choice and enhance the value of their credit cards and mortgages from 1 May 2015. Westpac has a strong proposition having built a streamlined customer online onboarding process in addition to competitive points earning incentives.

“Banking is a people business. I would like to thank all staff as this result is made possible by their on-going belief and commitment that Westpac can be one of the world’s great service companies.” Mr McLean said.

1 Westpac New Zealand is a management divisional view only, and is not the same as Westpac New Zealand Limited. The financial results of Westpac New Zealand Limited will be available in the Disclosure Statement and reconciliation between the two results is provided in conjunction with the publishing of the Disclosure Statement.

2 Cash earnings are a measure of performance used by the Westpac Group which adjusts statutory profit for any material items that do not reflect ongoing operations, items that are not considered when dividends are recommended and accounting reclassifications between line items that do not impact reported results. Cash earnings is not a measure of cash flow or net profit determined on a cash accounting basis, as it includes non-cash items reflected in statutory profit determined in accordance with IFRS. Westpac New Zealand's cash earnings result for the half year ended 31 March 2015, as reflected in the Westpac Group's Full Year Results Announcement, is equal to statutory profit as none of these cash earnings adjustments impact on Westpac New Zealand's reported results. A reconciliation between Westpac New Zealand’s cash earnings result and Westpac New Zealand Limited’s statutory profit result is provided in conjunction with the publishing of the Westpac New Zealand Limited Disclosure Statement.

3 Deposits are equal to Deposits at amortised cost as disclosed in the Westpac New Zealand Limited Disclosure Statement.

4 System figures are sourced from The Reserve Bank of New Zealand.

5 BT Funds Management (NZ) Limited is the scheme provider and Westpac New Zealand Limited is the distributor of the Westpac KiwiSaver Scheme. A copy of the investment statement for the Westpac Kiwisaver Scheme is available from any Westpac branch in New Zealand or by visiting www.westpac.co.nz. The Westpac KiwiSaver Scheme was rated Platinum by Super Ratings in 2015. SuperRatings does not issue, sell, guarantee or underwrite this product. Go to www.superratings.com.aufor details of its rating criteria.

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