Banks yet to shake off global meltdown

George Frazis. Photo / Steven McNicholl

First-half results for two of New Zealand's largest banks show the sector has made a recovery but is not back to where it was before the global financial crisis.

Westpac yesterday said its New Zealand business had made a net profit after tax of $125 million for the six months to March 31.

The result was down 38 per cent on the previous corresponding period but was more than triple the $34 million net profit Westpac made in the six months to September when its impairment charges blew out to $388 million.

The Westpac result follows that of the ANZ which last week reported an underlying profit of $372 million, nearly three times the $134 million it made in the prior six months but still down 25 per cent from a year ago.

Massey University senior banking lecturer Claire Matthews said she expected the BNZ, whose parent company National Australia Bank is to file its results today, to follow suit as the banking sector benefited from the pick-up in the local economy.

"We are seeing a better reporting season for all the banks. That reflects the fact the New Zealand economy and the banking system was not as badly hurt as others," she said.

Both ANZ and Westpac's results gained from a reduction in impairment charges but Matthews warned impairments could grow again should there be more loan defaults.

"Just because they have got rid of a couple of big ones doesn't mean there won't be more," she said of Westpac's impairments.

But Westpac New Zealand chief executive George Frazis said he expected impairment charges to fall as long as the economy continued to recover.

He believed it would take two years before the banks got back to where they were before the global financial crisis and the local recession hit.

Frazis said the company's results had been "pleasing" as there had been good growth across all of its business.

Westpac had gained market share in both lending and deposits and had continued to lend during the difficult economic conditions.

"We have not bunkered down and closed shop."

The bank had also expanded, opening five new community branches, increasing its front-line bank staff and upskilling existing staff.

Frazis said there was no doubt the market had turned for the better but he predicted a challenging 12 months ahead.

"There is no doubt New Zealand is back on the road to recovery. But it is still tough for customers."

Westpac's deposit book grew 7 per cent to $29.97 billion while its lending also grew 4 per cent to $50.2 billion compared with the same prior period.

But Frazis said the growth in its loan book had been offset by higher wholesale funding costs, lower fee incomes and increased impairment charges.

"The higher costs of deposits and wholesale funding have eroded Westpac's net interest margin, which contracted 15 basis point to 2.07 per cent."

The bank had also lowered fees for overdrawn accounts, missed payments and bounced cheques which had pushed fee revenue down from $31 million to $5 million in the past six months.

Impairment charges were $208 million, up 13 per cent on the previous corresponding period but down 46 per cent on the prior six months to September.

Chief financial officer Richard Jamieson said a tax write-down of $108 million, incurred from losing a tax case against the Inland Revenue last year, would be on its books for its consolidated Westpac Banking Corporation New Zealand accounts, which would not come out until the end of the month.