Westpac NZ expects $ 211 hit linked to Covid-19

Cash gains in Westpac New Zealand have been highly successful after the bank increased its impairment charge to $ 211 million as it prepares to weather the storm of the Covid-19 coronavirus.

The New Zealand division of the ASX-listed bank reported cash earnings excluding notable items of $ 295 million during the six months to March 31, 47% less than in the corresponding prior half in 2019.

That occurred when the bank raised its impairment charge from $ 14m to $ 211m.

Last week, Westpac Group, the Australian parent, announced an impairment charge of A $ 2.2 billion of which A $ 1.6b was related to Covid-19 impacts during the six months to March 31.

At the time, Westpac Group chief executive Peter King said the world was going through a once-in-a-lifetime economic and health crisis and that the bank was committed to helping as many clients as possible to save the closing period. .

But exactly what kind of impact the New Zealand business expects has not been revealed until today.

Westpac New Zealand Chief Executive David McLean said that although the Covid-19 impact occurred last in the half-year reporting period, it had a significant impact.

“Our entire outlook changed in the space of a couple of weeks as the country closed. This half-year result reflects only the first impacts of Covid-19, and our initial assessment of credit losses that we will likely see as a result . “

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Westpac New Zealand’s net operating income fell 7 percent to $ 1.16 billion, as its non-financial income decreased.

While operating expenses at the bank increased 13 percent to $ 541 million compared to $ 480 million.

Its main earnings fell 19 percent to $ 621 million.

Customer deposits increased 8% to $ 69b, while total net loans also increased 6% to 87b

Despite the increase in loans, the bank has seen its margins decrease, falling 17 basis points to 2.06 percent.

McLean said the bank was committed to supporting clients through the impact of the pandemic and helping the economy recover.

“Despite the very serious financial impact that many will experience as a result of Covid-19, we are confident that New Zealand is well positioned for recovery, having entered the crisis in a sound economic position and having responded very well to the pandemic. “

As of April 30, the bank had provided mortgage or personal loan relief to 22,118 clients with loans totaling $ 7b.

It also converted $ 1.4b of business loans into interest-only or reduced repayments for 1,560 business clients.

The bank had also received more than 600 loan applications through the Government’s Business Finance Guarantee Plan. The scheme was modified on Friday when the government announced direct interest-free loans to small businesses amid concerns that banks were not doing enough to lend to small businesses.

McLean said the bold and early action of the government and regulators, with the support of banks, helped reduce Covid-19’s immediate impact on customers and the economy.

“Interest rates are kept low at all times, which will help soften the impact on borrowers whose incomes have been cut, and wage subsidies and mortgage deferrals give households and businesses time to regroup.”

But he said low interest rates would also make it harder for depositors to depend on their investment income and would continue to compress bank loan spreads.

Australian parent Westpac Group reported a net profit of A $ 1.19b for the half year, 62% less than in the corresponding prior period, while its cash earnings fell 70% to $ 993m.

The bank also deferred its decision to pay a dividend, a move that emulates rival bank ANZ that made that call last week.

King said the result was the “most difficult” Westpac had seen in many years.

“It is significantly affected by higher impairment charges due to Covid-19, as well as notable elements, including the Austrac provision.”

However, he said Westpac’s balance sheet remained strong.

“We are well capitalized and our liquidity and financing metrics are comfortably above regulatory requirements.”