Westpac New Zealand Reports 13% Profit Increase Amid Rising Margins

Westpac New Zealand has announced a significant increase in its net profit after tax, rising by 13% to $1.20 billion for the year ending September 2023, compared to $1.06 billion in the previous year. This growth can be attributed to the bank’s ability to generate more income from borrowers relative to what it paid to savers, reflecting a robust performance in the current economic climate.

The bank’s net interest income climbed by 9%, and its net interest margin improved by 15 basis points, reaching 2.32%. Westpac reported increased profitability from its mortgage portfolio, with home lending rising by 5% and business lending increasing by 2%. A shift in customer behavior, where clients moved funds from term deposits to more cost-effective transaction and savings accounts, also contributed to this positive result. The value of term deposits declined by 2%, while transaction deposits grew by 2% and savings accounts surged by 8%.

Positive Economic Indicators and Consumer Confidence

Another significant factor supporting profit growth was a $71 million positive adjustment in impairment provisions. This outcome indicates that customers have managed to navigate the challenging economic landscape more effectively than anticipated. Westpac New Zealand’s Chief Executive, Catherine McGrath, noted that an increasing number of home loan customers are now more than three months ahead on their repayments than six months ago.

“Our data shows the average customer is nearly 11 months ahead on repayments, with an average ‘buffer’ of almost $12,000,” McGrath stated. She further observed that housing arrears and the number of customers requiring assistance from Westpac’s Financial Hardship team have also decreased compared to the previous financial year.

Looking ahead, McGrath expressed optimism about the potential for rising consumer and business confidence to stimulate economic activity as the country progresses towards 2026.

Impact of Lower Interest Rates

The recent reduction in the Official Cash Rate (OCR) by the Reserve Bank has eased borrowing costs for consumers. According to McGrath, “In the last week of October, our customers were rolling off an average fixed home loan rate of 5.95% per annum.” She explained that a customer with a $300,000 loan on a 15-year term transitioning to the bank’s current one-year special rate of 4.49% per annum would save an additional $230 per month.

The effects of the lower OCR are expected to continue influencing the economy, with Westpac projecting that approximately 40% of fixed-rate home loans will be repriced within the next six months. Economists at Westpac forecast economic growth of 1.2% for 2025, increasing to 3.0% in 2026 and 3.4% in 2027 as the full implications of rate reductions are felt by households and businesses.

As Westpac navigates these evolving economic conditions, the bank’s focus on customer service and financial prudence appears poised to support its ongoing performance in the competitive banking landscape.