Small firms face more hard times, says bank

George Frazis. Photo / Steven McNicholl

Domestic-focused businesses will continue to find it tough over the next year but export growth and house price stability should result in a pick-up in the second half of next year, Westpac New Zealand boss George Frazis says.

The bank yesterday released its year to September 30 result showing net profits after tax up 36 per cent to $322 million after the bank slashed its impairment charges by 39 per cent to $347 million.

The result did not include a $188 million write-back from the structured tax case in which all the major banks reached a settlement agreement with the Inland Revenue last year which was accounted for as part of its institutional business.

Frazis described the performance as "solid" in a tough economic environment.

Westpac chief financial officer Richard Jamieson said while there had been an economic recovery it was slower than most had expected.

Jamieson said core earnings were down 11 per cent driven by a fall in net operating income.

"That was driven by increased costs in wholesale funding combined with intense competition in deposits."

Operating expenses were also up 0.7 per cent to $746 million.

Jamieson said the bank had managed its expenses tightly but costs had been driven up by its investment in the business which involved adding eight branches, 150 frontline staff and an upgrade of 414 cash machines with new touch-screen technology.

Impairment charges for bad and doubtful debts were down 39 per cent which was a reflection of a "steady improvement" in the economy and the absence of one-off large items compared to the prior period.

Jamieson said the improvement also reflected residential mortgage customers coming off high fixed rates and moving on to lower floating rates. Impairments in personal loans and credit cards had also improved.

But the Canterbury earthquake had added $10 million to the company's impairment charges.

Jamieson said the bank had above-market growth across its core products with mortgage lending up 6 per cent to $33.9 billion and deposits up 6 per cent to $30.5 billion.

Frazis said there was no doubt New Zealand was recovering.

"A key driver of the recovery is exports, which is good for the nation, but will take time to flow through the broader economy. This means domestic businesses and households still face a tough year ahead."

Westpac expected house prices to be flat and consumer spending to be down which would impact on SMEs.

But the big end of town would benefit from export growth and the strong agriculture sector which were likely to boost the wider economy in the second half of next year, Frazis said.