Westpac’s NZ profit rises 3%

AUCKLAND: Westpac New Zealand lifted annual net profit 3%, a bright spot in its Australian parent’s ‘‘disappointing’’ year, in which group profit fell 16%.

The parent bank is also seeking to raise $A2.5 billion ($NZ2.68 billion) in fresh equity to provide a larger buffer of capital above the regulatory minimum.

But the New Zealand subsidiary also delivered good news on the capital front, as the Reserve Bank of New Zealand released it from a twoyear period in purgatory for failing to get nearly half its internal models for calculating capital approved, a failure dating back to 2008 when it was first accredited to use the models.

RBNZ had ordered Westpac New Zealand to hold about $1 billion of additional capital for those two years, a twopercentagepoint overlay above its minimum required capital.

That impost has now been removed.

Westpac New Zealand’s net profit for the year ended September rose to $964 million from $936 million, boosted by a $10 million writeback of charges against profit for bad debts and the $40 million gain from selling its Paymark stake.

The parent bank’s net profit fell to $A6.78 billion for the year from $A8.1 billion the previous year.

The New Zealand subsidiary says its core earnings were down 1% and cites strong competition and increased investment in technology, risk and compliance systems — operating costs rose 7% to $993 million while net interest income was nearly flat at $1.97 billion and noninterest income rose 10% to $448 million.

But the investment in risk and compliance earned it praise from RBNZ. Deputy governor Geoff Bascand said Westpac was now ‘‘operating with peerleading processes, capabilities and risk models’’.

‘‘Westpac has taken the findings of the independent review as an opportunity to make meaningful improvements to its risk management and we commend it for its cooperative and constructive engagement,’’ Mr Bascand said in his statement lifting the capital penalty.

RBNZ is now satisfied Westpac meets the appropriate standards.

‘‘Looking forward, we will continue to hold all internal model banks to the same high standards,’’ Mr Bascand said.

ANZ Bank has also run foul of the requirements to get its internal models approved.

The only banks in New Zealand allowed to use internal models are the four Australianowned banks.

Westpac did not say what its capital ratios were at September 30 but its parent’s common equity tier 1 ratio at that date was 10.67%, just above the Australian Prudential Regulatory Authority’s 10.5% minimum benchmark. The capital raising will lift that ratio to 11.25%. — BusinessDesk