KEY POINTS:
SYDNEY - Westpac Banking Corp has reported a 12.4 per cent rise in annual profit and says demand for credit will remain high amid ongoing robust economic conditions.
Australia's fourth largest bank said it was confident of being able to continue to deliver strong results
in the future.
Westpac's bottom line net profit rose 12.4 per cent to a record A$3.451 billion for the year ended September 30.
Cash earnings rose 14 per cent to a record A$3.507 billion.
Westpac chief executive David Morgan said the bank had delivered a strong and sustainable result.
"This is a high quality result, led by revenue increasing 11 per cent, the highest for many years," he said.
"We have achieved strong double digit earnings growth of 14 per cent without compromising new business margins or risk settings.
"Importantly, our return on equity of 24 per cent is the highest in Westpac's recent history."
Dr Morgan, who is leaving the bank soon, making way for former St George Bank Ltd chief Gail Kelly, said all of Westpac's units are showing good operational momentum going into fiscal 2008.
"Looking ahead, the economic environment remains broadly supportive," he said in a statement.
"The Australian economy is expected to remain robust, underpinned by continuing strong demand, both domestically and internationally, and historically low unemployment.
"As a result, demand for credit is expected to remain high with solid housing growth and continuing robust business investment."
Dr Morgan said a key variable in the year ahead was the current dislocation of global capital markets.
"While we anticipate an easing in the tight liquidity conditions through 2008, some changes brought on by the fall-out of the US sub-prime market are structural and will become a more permanent feature of financial markets," he said.
"In particular, we expect more differentiated pricing for risk," Dr Morgan said.
"It is also likely that the business models of some market participants will be challenged by the tighter liquidity and the realignment of asset prices."
Westpac chief financial officer Phillip Coffey said higher funding costs caused by the credit crunch had taken five basis points off the bank's net interest margin in the second half of fiscal 2007.
However, there was only a two basis point decline recorded across the group.
Mr Coffey said higher funding costs would continue to impactt into fiscal 2008.
"In term markets, they look like we've probably seen a low point historically and they are going to be higher," he told journalists.
Still, Mr Coffey said Westpac expects its net interst margin to decline.
"We live in a very competitive environment so we think our historical range of a five to 10 basis point decline is what we'd expect to see continue," he said.
Mr Coffey said the biggest determinant of movements in interest rates was market factors.
Westpac NZ lifted its September year net profit to $465m from $458m a year earlier. Its second half profit was $244m against the first half profit of $221m.
NZ operating income before tax was $684m up 1 per cent for the year and $359m in the second half, against $325m in the first half.
Consumer lending grew 18 per cent in NZ, driven by 19 per cent growth in mortgage lending.
The bank said it had strong growth in the Auckland market and its unsecured lending grew 12 per cent.
Mortgage spreads declined 12 basis points in NZ as a result of a further shift to fixed interest loans.
NZ business lending volumes were up 13 per cent but competitive pressures squeezed margins 8 basis points.
Deposit volumes increased 15 per cent with growth coming from online saver and term deposit accounts.
Dr Morgan said the bank was well placed to respond to the challenges posed by the credit market fallout.
"While recent global capital market conditions have posed challenges, our strong funding and capital position has us well placed to respond to global economic developments," he said.
"Importantly, Westpac has no direct sub-prime exposure and our credit quality remains sound, although delinquency levels are moving up from historically low levels."
During fiscal 2007, the bank's consumer financial services unit grew cash earnings by 21 per cent to A$951 million.
Westpac Institutional Bank also enjoyed strong growth, with cash earnings up 16 per cent to A$610 million.
Group net interest income was up 12 per cent to A$6.313 billion while net operating income rose 10 per cent to A$10.173b.
Cash earnings per share lifted 13 per cent to A189.4 cents.
Westpac was not highly reliant on securitisation funding, Dr Morgan said.
Westpac only securitised debt sporadically and had completed a A$7b issue in June this year, he said.
Westpac declared a final dividend of A68 cents, taking the total for the full year to A131 cents.
- AAP
