November 1 was a mixed bag of results for Westpac that announced it had made an annual profit of $1.01 billion over the last year ending in September 2021. This profit was a 56% increase on that of the previous year, a margin higher than the 39% increase recorded by ANZ for the same period.
The impressive result was driven by increased margins on home loans and the reversal of about $400 million in loan provisions that were not defaulted on as expected. Net interest income figures were boosted by a 3 basis point increase in margins to 2.00%, alongside 5% growth in lending primarily driven by mortgages amounting to $5.7 billion.
First time home buyers were found to be key contributors to mortgage growth, accounting for 6,598 mortgages that Westpac disbursed during the reporting period. Mortgage lending consequently grew by 24% compared to the previous year. Deposits also grew by an estimated 7% or $4.9 billion, which helped to fully fund new lending and lifted the deposit to loan ratio to 82%.
At first glance, it would appear that this is a super profit made at a time when many people are suffering financial setbacks as a result of the pandemic. Westpac NZ’s acting chief executive, Simon Power, however, denied this, noting that the billion in profit accounted for just a 1% return on the bank’s $100 billion balance sheet. He also noted that the economy had performed better than expected, hence the reduction in loan provisions. He added that the bank continued to be optimistic about the impact of the pandemic on the country’s economy and citizens’ health as vaccination rates increased.
The S&P/NZX 50 Index however declined following the release of these figures as analysts noted that though there was an overall increase in Westpac earnings, there was a dip in the second half by almost 50%, with profit margins shrinking under cost pressure. Westpac’s share price on the NZX fell by 6.3% to $25.53, causing a $6 billion loss in its market value. It would appear from a market standpoint the earnings results were not as well-received.
The bank also noted in its annual report that it was considered the country’s least-loved bank. Based on net promoter scores, Westpac recorded a disappointing 14 compared to results of 26, 34, 35, and 38 from the remaining top five banks. This score indicates the proportion of customers that would recommend the bank, minus those who would not recommend the bank. Power confirmed that the bank had invested in a brand marketing campaign to help turn this around.
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