Westpac’s profit jumps 13%, as it fattens its margins; CEO says average borrower is ahead on their mortgage repayments

Westpac New Zealand chief executive Catherine McGrath says the average customer is nearly 11 months ahead on repayments, with an average ‘buffer’ of almost $12,000. Photo / Mark Tantrum

Westpac New Zealand’s net profit after tax rose by 13% over the past year, as it received more interest from borrowers relative to that it paid savers.

The New Zealand branch of the Australian-owned bank reported a net profit after tax of $1.20 billion in the year to September – an increase from $1.06b the prior year.

The result came as its net interest income rose by 9% and its net interest margin rose by 15 basis points to 2.32%.

The bank noted it made more money from its mortgage book.

Speaking to the Herald, Westpac New Zealand chief executive Catherine McGrath explained the bank benefited from borrowers putting their mortgages on relatively expensive floating and short-term fixed rates in the hope they would be able to lock in more attractive longer-term rates once they reached the trough in this cycle.

She assured Westpac cut its mortgage rates more quickly than it hiked them a few years ago when the Reserve Bank lifted the Official Cash Rate (OCR) to try to get on top of inflation.

Westpac also increased its home lending by 5% and its business lending by 2% in the year to September.

On the other side of the ledger, it profited from its customers shifting their money from term deposits to lower cost transaction and savings accounts.

The value of term deposits held by the bank fell by 2%, while transaction and savings deposits rose by 2% and 8% respectively.

McGrath acknowledged people were less inclined to want to have their money locked away in term deposits when interest rates were low.

She believed the bank’s Notice Saver account, which pays 3% per annum, was proving to be a particularly attractive product for the time - giving savers a decent enough return in the low interest rate environment, while giving them easy access to their money.

The other factor that supported the bank’s profit growth was a $71 million positive swing in impairment provisions, as customers coped better than expected with the tough economic environment.

The bank’s expenses rose by 7%, as it invested more in technology and its staffing costs rose.

McGrath’s pay packet nearly doubled between 2024 and 2025 from $1.8m to $3.5m.

Average customer 11 months ahead on mortgage repayments

McGrath was hopeful a lower OCR would support the economy.

“Our data shows a higher proportion of home loan customers are at least three months ahead on their home loan repayments than six months ago, following nearly three years of decline,” she said.

“The average customer is nearly 11 months ahead on repayments, with an average ‘buffer’ of almost $12,000. Housing arrears and the number of customers being supported by Westpac’s Financial Hardship team are also down on the 2024 financial year.

“We think all this will add up to increasing consumer and business confidence and therefore higher spending to stimulate economic activity as we head into 2026.”

McGrath noted that in the last week of October, Westpac customers rolled off an average fixed home loan rate of 5.95% per annum.

“A customer with a $300,000 loan on a 15-year term rolling off that rate on to our current one-year special of 4.49% per annum would have an extra $230 a month in their back pocket,” she said.

Westpac noted borrowers would continue feeling the effect of a lower OCR, with around 40% of fixed rate home loans due to be repriced in the next six months.

Westpac economists forecast economic growth of 1.2% for 2025, rising to 3.0% in 2026 and 3.4% in 2027, as the full effects of rate reductions flow through to households and businesses.

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.

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