Westpac NZ boss Simon Power defends $1.01b profit

Westpac NZ’s acting chief executive Simon Power has defended the bank’s $1.01 billion cash profit, saying it reflected a stronger-than-expected economy.

The result for the September year was up 56 per cent, boosted by a $404m turnaround in asset impairment charges.

“The numbers are big but the returns are in a reasonable zone in my view,” Power said in an interview with the Herald.

Simplicity founder Sam Stubbs last week called for a banking inquiry after ANZ New Zealand posted a profit of close to $2 billion, but Massey University banking expert David Tripe said Westpac’s result did not appear to be excessive.

“Relative to the size of the balance sheet, the profit is not outstanding,” Tripe told the Herald.

Power said Westpac is a large business with a 160-year history in New Zealand with a $100 billion balance sheet, “so our profit represents a 1 per cent return on those assets”.

In its result, Westpac said its net interest income benefited from a 3 basis point increase in margins to 2 per cent and lending growth of 5 per cent driven by $5.7b in mortgage growth.

Deposits increased by 7 per cent, or $4.9b, which fully funded the bank’s loan growth and lifted its deposit-to-loan ratio to 82 per cent.

Power said a healthy banking system meant that the economy is in good shape “and one that is there to help businesses and individuals .”

He pointed out that consumers had 15 banks to choose from.

“Overall, a healthy banking system is a good thing,” Power said.

Stubbs said the Aussie banks have traditionally made 20 per cent more out of the New Zealand customer than they do out of the equivalent Australian one.

“Covid has been an acid test of how powerful your franchise is, and whether or not an industry demonstrates unconsumer-friendly characteristics.

“We have see than through Covid now, what other industry has managed to increase its margins and significantly increase their profit?

“I think that we are going to find this with the ASB and BNZ as well – that they will have near record years.”

“The fact that these banks have increased their margins reflected the fact that the market is not as competitive as it should be.”

Stubbs said over-provisioning for bad and doubtful debts had created the illusion that the banks were sharing he pain.

“But in reality they are not.”

The bank’s capital ratio was 13.8 per cent by the end of September, in excess of reserve bank’s requirements which stipulate the ratio needs to be at 13.5 per cent by 2028.

Westpac, along with he other big banks, were strongly opposed to the higher capital requirements putforward by the Reserve Bank.

“The regulator has given us guidelines and we will follow those guidelines.”

“We have moved on,” Power said.

“We have a job to do.”

Power said Covid-19 was causing significant strain and uncertainty for parts of the community but economic activity in the year leading up to the latest outbreak had been very strong.

The Delta variant posed serious health and financial challenges.

“Looking to the horizon, we’re optimistic increasing vaccination rates will reduce the impact of the virus on New Zealanders’ health and the economy,” Power said.

The bank last year increased its lending provisions to $657m to reflect the economic outlook from expected Covid-19 impacts.

“The economy has performed better than expected and, as such, our lending provision levels have reduced to $525m, representing 0.6 per cent of our total lending portfolio,” he said in a statement.

Former chief executive David McLean retired after 22 years with Westpac.

His successor, Catherine McGrath, starts later this month.

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