Westpac New Zealand has delivered profit growth over the past year despite strong competition and increased investment in technology, risk and compliance systems.
Westpac Bank. Photo: RNZ / Dom Thomas
The bank's net profit rose 3 percent to $964 million in the year ended September, despite a 1 percent drop in core earnings.
Cash earnings, which was a preferred profit measurement, also rose 3 percent to $1.04 billion.
Net interest income was flat, while costs rose 7 percent.
Westpac New Zealand chief executive David McLean said profits had been boosted by the sale of Paymark, as well as the continued low level of bad debts.
He said low interest rates meant two-thirds of customers were ahead in their mortgage repayments by a median of eight months, or an average of $8,652 at full year end.
Net loans rose 5 percent, reflecting increases in mortgages and business loans.
Deposits also rose 4 percent, however, he said the drop in interest rates had affected the savings of retirees.
Mr McLean said business conditions had also deteriorated over the past six months, given an uncertain economic outlook.
"Although significant risks exist globally, the local economy remains in reasonable health, our business is fundamentally sound and our balance sheet continues to be well managed."
The bank's net interest margin fell slightly by 8 basis points to 2.16 percent, which was stronger than Westpac's Australian parent.
The Australian group had a disappointing result with net profit down 16 percent to $AU6.78b, with cash earnings down 15 percent.
It was planning to raise $AU2.5b to strengthen its finances and partly to pay for the fall out from the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Westpac completes remediation
Meanwhile, Westpac has been put back on the list of big banks allowed to assess their own financial risks and capital requirements.
The bank's privilege was revoked in late 2017 when it was discovered to be using unapproved methods to assess the risks and so the amount of money it needed to cover those risks, as well as not having proper structures to manage the process.
The Reserve Bank (RBNZ) at the time described the breach as "very disappointing" and ordered the bank to hold more capital, giving it 18 months to sort out the problems.
RBNZ Deputy Governor Geoff Bascand said Westpac has made the necessary changes and now has among the best processes, capabilities and risk models in a number of areas.
"The changes that Westpac has made to its internal processes, governance and resourcing, as well as a suite of new credit risk models for which it has sought approval, have given us confidence in its capital modelling and compliance and satisfied us that it now meets the internal models bank standard."
Westpac said it is "pleased with the outcome".
The country's big-four banks are allowed to work out how much money to hold as capital to cover the risks, such as a repeat of the global financial crisis. Smaller banks are required to have systems and capital reserves dictated by the RBNZ.
The central bank is expected to release decisions early next month on proposals to make all banks hold significantly more capital to strengthen their finances in the event of a financial crisis.
The big Australian owned retail banks have warned the proposals will cost them billions over several years and may result in higher lending rates, reduced lending, or possible changes to their operations in New Zealand.