The Consumer bank delivered strong home loan and deposit growth while the Business bank had sound balance sheet growth, particularly with SMEs, and stable margins, Hartzer said.
"However, sector headwinds contributed to a softer performance in other divisions. In particular, Westpac Institutional Bank was affected by lower net interest margins and significantly higher impairment charges related principally to four large exposures which added A$252 million to provisions," he said.
In response to regulatory changes the group raised about A$6 billion in equity over 2015, lifting its common equity Tier 1 ratio to 10.5 percent, about 2 percentage points higher than a year ago.
"While this capital has significantly strengthened the balance sheet, it has come at the cost of returns," he said. "This has led to a reduction in the return on equity and lower earnings per share."
Its New Zealand division increased cash earnings by 2 percent on a year ago to A$445 million, as it continues to grow in line with the market while steadily expanding its wealth and insurance business. Intense competition for new lending and a shift to lower spread fixed mortgages has tightened margins, the bank said.
Despite deteriorating conditions in New Zealand's dairy sector, asset quality had remained sound with impaired assets-to-total committed exposure (TCE) reducing 6 basis points to 0.35 percent and consumer delinquencies remaining at near historic lows.
Westpac's New Zealand agricultural portfolio totals A$8.6 billion, up A$1 million on the previous half and accounting for 7.9 percent of the bank's TCE. The percentage of the portfolio graded as stressed rose to 7.81 percent from 3.92 percent in the September half year, although the actual percentage of impaired agricultural loans decreased slightly to .32 percent.
Groupwide the bank has A$14.5 billion in agricultural lending, which is down A$1.4 billion on the previous half, with 5.84 percent of it graded as stressed.
Westpac NZ's lending market share remained steady - it has a 20 percent share of consumer lending, 21 percent of deposits, and 16 percent of business lending. New Zealand lending increased NZ$2.6 billion or 4 percent from the previous half and 7 percent on a year ago.
Mortgages lending rose 3 percent from the previous half to NZ$43.4 billion and business lending was up 5 percent from the previous half to NZ$27 billion.
Hartzer said he was positive about the outlook for the Australian economy and expected another year of sound growth with GDP increasing by around 2.8 percent in 2016 with the transition to a more services-based economy already well underway.
"The main threat we see is from global factors, which create fragility in businesses and regions that are more dependent on mining and mining construction," he said. "We also see signs of moderating housing investment, although housing fundamentals remain in good shape."
He said Westpac remains strongly positioned in key markets with a modest underweight position in both the New Zealand dairy and mining sectors, and those regions more reliant on resources.
See the full Westpac release here:
