Westpac New Zealand has outshone its Australian bank owner, raking in $707 million in after-tax profit for the year to September 30.

The 22 per cent surge from last year's result was driven by a big reduction in bad debts, strong balance sheet growth and improved profit margins.

But the bank's parent company of the same name saw a 15 per cent reduction in net profit to A$5.97 billion (NZ$7.49b). After accounting for a one-off tax consolidation that had boosted last year's results, the group's profit were up 5 per cent to A$6.6b.

Westpac NZ's operating income increased by 7 per cent, with the mortgage book growing 3 per cent and business loans by 4 per cent despite the restrained lending environment.

The bank's margin between the cost of funding and the loans it issues, rose from 2.64 per cent to 2.72 per cent, on the higher end of the scale compared to other banks.

Impairment charges fell $50 million as the quality of the loans on its books continued to improve.

Cross-selling multiple products to customers also contributed to the strong return, validating the bank's recent investment in banker training and its branch network. The number of Westpac customers with four or more financial products rose by 4 per cent, and those with wealth products increased by over 20 per cent.

Westpac NZ chief executive Peter Clare said the growth in lending had been supported by a drive for deposits, which increased 11 per cent to $42b. The major banks have all pushed to increase retail deposits to reduce their reliance on wholesale funding overseas, which is volatile and often more expensive.

Clare said global uncertainty ahead would continue to affect the decisions of New Zealanders.

"Consumers have continued deleveraging as have many businesses who remain focused on strengthening their balance sheets rather than investing now for growth."

However, he said the New Zealand economy was well placed for growth compared to many others around the world. "The key now is moving from caution to confidence and investing for future growth," he said.

Westpac is the last of the big four Australian-owned banks to post its full-year results, following BNZ's near-record return last week and ANZ's record profit the week before.

Westpac Group chief executive Gail Kelly said in an announcement to the Australian Stock Exchange that the New Zealand division was performing strongly, with significant front-line investment and improving credit quality. The Group as a whole posted cash earnings above analysts' expectations, but has been hit by increasing bad debts and lower margins. The net interest margin for the group was 2.17 per cent, well below its New Zealand division, and shrank 5 basis points over the year. Impairment charges were also A$219m higher.

Westpac is dual-listed on the Australian and New Zealand stock exchanges. After a trading halt lifted this morning, the stock was recently trading down 0.2 per cent at $31.50.

- © Fairfax NZ News

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