Westpac Banking Posts 11% Rise in First-Half Profit
Westpac Banking, Australia's fourth-biggest lender, said on Thursday first-half cash profit climbed 11%, spurred by higher demand for loans and a strong performance by its wealth management business.
The result was a record for a six-month period, and the bank forecast solid earnings growth and still low credit risk, although it cautioned its New Zealand business remains a turnaround challenge.
"This record result was driven by a good performance across Australian banking and an outstanding performance in our wealth management business," said Westpac Chief Executive Officer David Morgan, who is due to retire at the end of 2007.
Australian banks have benefitted from 16 years of ceaseless economic growth with three-decade low unemployment rate keeping bad debts at near record lows.
A mandatory pension scheme and a four-year rally in stock market have markedly lifted the performance of wealth management divisions of the banks.
But analysts expect credit growth to slow and bad debt provisioning to rise as last year's three interest rate rises begin to impact demand for loan.
Westpac's cash earnings, which excludes one-off items and non-cash accounting treatments, for six-months ended March climbed to A$1.68 billion (US$1.39 billion) from A$1.51 billion reported a year ago.
Seven analysts on average had forecast cash earnings of A$1.673 billion. Estimates ranged from A$1.655-A$1.691 billion.
BT Financial Group, Westpac's wealth management unit, was the strongest performer, delivering a 22% rise in cash earnings. BT now contributes about 11% to Westpac's cash earnings.
Chief Financial Officer Phil Coffey told journalists that wealth business remains focus area and the Bank would continue to invest in this business to achieve greater growth.
Delinquencies rose 25% in the first half, but Morgan said credit quality remained sound.
The credit cycle was returning to more normal levels after recent interest rate rises and impairment losses were expected to rise above the loan growth rates, which grew by 17% in the first six months.
But risks across the portfolio were expected to remain relatively low, the bank said.
Westpac said high interest rates and a strong currency in New Zealand were seen slowing growth for the rest of the fiscal year. Westpac owns New Zealand's second-biggest bank.
But in Australia it has won market share over the half-year in housing, corporate lending and credit cards from its bigger rivals such as Australia and New Zealand Banking Group and Commonwealth Bank of Australia.
Shares in Westpac have risen 13.6% so far in 2007, outpacing a 10% increase in the benchmark S&P/ASX 200 Index in the same period. That makes Westpac Australia's best performing banking stock among the top five lenders.
The bank reporting season, which began last week, has offered few surprises with both ANZ and St. George Bank delivering in line with market expectations.
Industry leader National Australia Bank and investment bank Macquarie Bank are scheduled to release their first-half and full-year earnings respectively over the next two weeks.
ANZ's CEO John McFarlane is also scheduled to leave at the end of the year and investors are keen to see smooth transitions at two of the top four Australian banks.