Westpac’s profit jumps 10% as its income rises and impairment costs fall

Westpac NZ estimates that by the end of the year, more than a quarter of its fixed home loan customers will have rolled onto lower rates. Photo / John Weekes

Westpac NZ’s profit jumped 10% over the past year as it reduced provisioning for bad debts.

The Australian bank’s New Zealand division reported a net profit of $1.06 billion in the year to September 30, as its impairment charges dropped from $135 million to $27m.

Speaking to the Herald, Westpac NZ chief executive Catherine McGrath said the bank’s profit fell in 2023, because of the amount it put aside for expected bad debts.

“What we’re seeing this year is that New Zealanders are being more resilient than anticipated,” she said, explaining the bank was able to normalise its provisioning for bad debts.

She noted that if you stripped out the change in provisioning, Westpac’s profit would only have risen by 1% over the year.

McGrath said she would make this point to Parliament’s Finance and Expenditure Committee, which is doing an inquiry into banking competition, if quizzed on Westpac’s billion-dollar profit.

She is due to appear before the committee on November 20. ANZ’s chief executive and board chair made their appearances nearly a fortnight ago. The top brass from Rabobank are next in line to appear on Wednesday.

Coming back to Westpac’s result, it increased the amount it lent a little, as high interest rates meant demand for debt was low across the economy.

It upped its home lending by 3% and business lending by 2%, with its net interest income rising by 3% to $2.59b.

The value of its deposits stayed the same, although customers shifted money from lower-interest-earning transaction and savings accounts to higher-interest-earning term investments.

Westpac increased its profitability, looking at the amount of interest it earned relative to the amount it paid. Its net interest margin rose by 4 basis points to 2.17% — a level below that of its main competitors.

McGrath hoped the bank would increase its net interest margin by securing lower-cost funding.

“One of the things that drove that improvement in the net interest margin was that we have a better range of funding programmes. For example, we issued our first perpetual preference share this year, and that’s made our cost of funding more efficient.

“I’d expect to do a bit more of that funding efficiency moving forward.”

McGrath assured Westpac had “acted swiftly” to pass falling interest rates on to customers.

“We estimate by the end of the year that more than a quarter of our fixed home loan customers will have rolled on to lower rates, and nearly three-quarters by this time next year.”

Westpac’s non-interest income was also up 7% to $279m, reflecting higher investment income and business fees from increased activity.

Westpac NZ chief executive Catherine McGrath wants to see the Government take more action to crack down on scammers.

Operating expenses rose by 6%, reflecting higher wages and salaries and “third-party vendor costs”, an increase in technology investment and amortisation costs, and ongoing costs associated with complying with the Reserve Bank’s outsourcing policy, or its requirement for Westpac’s New Zealand business to be sufficiently separate to its Australian one.

McGrath said the amount Westpac customers lost to fraud and scams fell over the year, despite reported cases rising by 12%.

She would not say how much Westpac customers lost to scams, but said: “Of every $10 of known fraud and scams that touched our systems, we prevented, recovered or reimbursed $9.

“Scammers aren’t going away, but we’re fighting back with strong investment in monitoring and prevention measures, better industry co-operation and empowering staff to intervene when a customer is trying to make a payment that doesn’t seem right.”

McGrath called out the tech giants for not doing enough to fight scammers.

“We want to see social media companies like Meta and big tech platforms like Google act faster to flag and remove scam content, to help stop scams at their source.”

She believed there was also room for regulators to do more to push the tech giants to crack down on scammers.

For example, the Online Safety Act in the United Kingdom requires search engines and social media platforms to remove illegal content they’re made aware of, if there is an actual or intended victim.

McGrath believed the pending rollout of confirmation of payee services among New Zealand retail banks by the end of the month would also help prevent some scams.

The service will notify someone making a payment if the account name and number they’re transferring funds to match bank records.

Customers will be provided with a “match”, “partial match” or “no match” notification.

“There is a lot of work we’re doing to try to help identify transactions that the customer may not really want to make — with the benefit of hindsight — to see if we can put a bit of friction in the process to give them time to think about it a bit more,” she said.

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.