Westpac's earnings rebound 68%

George Frazis can see small signs of recovery after a couple of years marred by recession and earthquakes in Christchurch. Photo / Dean Purcell

Westpac New Zealand's cash earnings rebounded by 68 per cent in first six months of its financial year despite a subdued economy, reflecting a reduction in loan impairment charges and improved margins.

The bank's cash earnings, the equivalent of a net profit after tax, for the six months to March 31 rose to $210 million from $125 million in the previous corresponding period, thanks to a $71 million reduction in impairment charges and a $50 million lift in its core earnings.

Lending rose by 2 per cent in the six months, compared with the previous corresponding period, mainly due to a 3 per cent rise in mortgage lending, while deposits increased by 5 per cent to $1.6 billion.

Margins improved during the period to 2.29 per cent. Operating expenses rose by 4 per cent.

There was continued improvement in the quality of the business loan book as "stressed" assets fell for the third consecutive half, the bank said.

Westpac NZ chief executive George Frazis said the economy had endured a "rough economic ride" over the last two or three years, because of the global financial crisis, the 2008-9 recession and the earthquakes in Christchurch, but there were clear signs of a recovery.

"The housing market is picking up and retail spending, outside of Christchurch, is starting to increase," he said.

Businesses had naturally been conservative while the economy went through a flat period, but the reconstruction of Christchurch would provide a significant boost, as would this year's Rugby World Cup, he said.

"The point is, we need to move from caution to confidence," he said.

Westpac nevertheless expects economic activity to be subdued until late this year.

"It's good to see that they are over the really bad times and that things are improving," said Claire Matthews, a senior lecturer at Massey University's Centre for Banking Studies.

"They are probably over the worst of the recession but the effects of it are probably not totally gone."

She said the bank's lending was still subdued, reflecting the fact that people were less inclined to borrow, rather than the bank's unwillingness to lend.

In Australia, the parent company reported a 38 per cent lift in its statutory net profit to A$3.96 billion ($5.42 billion), despite natural disasters in Australia and New Zealand costing A$100 million.

Westpac is Australia's second biggest bank and the world's 18th biggest by market capitalisation.

Chief executive Gail Kelly boosted earnings by raising borrowing costs higher than the country's central bank to offset higher funding costs and slow demand for credit.

Melbourne-based rival Australia & New Zealand Banking Group yesterday posted the smallest half-yearly profit increase in 2 years as lending profitability slipped.

"Westpac is reasonably well positioned to continue delivering solid results in the second half," said Victor German, an analyst at Nomura Australia (with a "buy" rating on the stock).

"Their cost performance is very good and the revenue trends were good."

Westpac shares fell 62c to A$24.11.

- Additional reporting: Bloomberg