Westpac well-positioned to support NZ through COVID-19 recovery

Westpac NZ had rolled out a new merchant fee pricing structure that would lead to savings for more than 10,000 small and medium businesses.

Westpac New Zealand (Westpac NZ)[i] is focused on helping customers adapt to the new economic landscape created by COVID-19 and is well-positioned to support New Zealand through the recovery, says Chief Executive David McLean.

"Almost every customer has been financially affected by COVID-19, whether that's directly through losing a job or taking a hit to their business revenue, or indirectly through lower interest rates or KiwiSaver volatility.

"Being there alongside our customers and our communities with help at such a critical time has been extremely fulfilling for our teams and is why our people show up for work every day."

Despite the challenging outlook and remaining uncertainty, Mr McLean said he was confident New Zealand remained well-positioned for recovery and Westpac NZ's healthy balance sheet would allow it to support customers and the economy.

"Over the past year, we've expanded our residential lending by 7% and have helped first home buyers into 5343 homes.

"We've increased our business lending by 3% and have been one of the few banks to expand our lending to farmers and agriculture[ii].

"We are open for business and stand ready to support Kiwis' dream of owning a home or expanding their business."

However, Mr McLean said the exceptional circumstances created by the COVID-19 pandemic were reflected in Westpac NZ's annual financial results released today.

The results showed a 38% decrease in cash earnings for the 12 months ended 30 September 2020, compared with the same period last year, driven by higher impairment charges and lower income in the current environment.

"We've provisioned for an increase in expected lending losses due to changing economic conditions, largely driven by COVID-19. However, our underlying asset quality remains strong.

"At the same time, we're investing to become a more resilient and modernised business to enable us to continue meeting the needs of our customers."

Westpac NZ had responded to COVID-19 by supporting customers and communities in a range of ways, including[iii]:

· Providing mortgage and loan repayment assistance to 21,959 customers;

· Providing more than $9 billion of new and restructured business lending;

· Waiving contactless debit fees for eligible existing customers for six months;

· Temporarily waiving minimum monthly merchant service fees for all businesses; and

· Donating an additional $1 million to rescue helicopters, to address the fundraising deficit caused by COVID-19.

"The collaborative and collective response from the Government, regulators and banks has provided confidence and certainty to customers in a time of turmoil," Mr McLean said.

Looking ahead

Mr McLean said Westpac NZ was prepared for a period ahead in which interest rates could drop to record low levels.

"This may compress bank lending margins but we're in robust shape and are well equipped to weather those pressures.

"A key concern is balancing the needs of borrowers and savers. We want to make sure we're passing on value to borrowers, who will appreciate reductions in repayments if their incomes have been reduced, but we also need to provide value to depositors, who provide us with the funds to lend and could feel the squeeze on their savings as a result of lower interest rates."

Mr McLean said there had been a significant increase in the number of customers banking digitally or through the contact centre since COVID-19 hit.

"That means our branch teams are now operating more flexibly. In some locations, our opening hours are reduced but our team are on-site, emailing and calling our customers, reflecting the way people are choosing to bank with us."

Westpac NZ would phase out cheques by 25 June 2021, Mr McLean said.

"We have a new programme of work planned to help transition our cheque users to faster, cheaper, safer ways of making payments. This will include running workshops with SeniorNet, both online and in-person."

Mr McLean said the bank remained focused on upgrading technology, fixing legacy issues and delivering new innovative products and experiences. This work had made good progress, despite the disruption caused by COVID-19.

Westpac NZ had rolled out a new merchant fee pricing structure that would lead to savings for more than 10,000 small and medium businesses.

"A small retailer like a café owner with small transaction volumes will pay only 3 cents when processing a debit contactless payment for a $5 coffee. That may have been 10 to 15 cents under the previous pricing."

The launch of hotpoints Pay® had given customers the freedom and flexibility to use their credit card hot points for purchases anywhere Mastercard is accepted.

Key Financials

(All comparisons are for the 12 months ended 30 September 2020 versus the same period last year)

· Cash earnings of $649m, down 38%

· Core earnings of $1,223m, down 14%

· Net operating income of $2,282m, down 6%

· Operating expenses of $1,059m, up 7%

· Impairment charges of $320m, compared with a net impairment benefit of $10m in the previous comparative period

· Net interest margin 1.97%, down 19 basis points

Customer deposits[iv] have grown 10% in the year ending 30 September 2020. Agribusiness lending has grown by 6% and deposits by 7% year-on-year.

Funds under management in the Westpac KiwiSaver Scheme[v] increased by 14% year-on-year, to $8.0 billion as of 30 September 2020. The average Westpac KiwiSaver Scheme balance increased 15% over the same period to $20,532.

Fees for Westpac KiwiSaver Scheme members were reduced on 1 December 2019. The monthly administration fee dropped from $2.25 to $1 and the management fee on all open funds fell by 0.1 percentage points.

Backing New Zealand

Mr McLean said Westpac NZ had taken its focus on sustainability to a new level.

"We're very proud that Westpac NZ was certified as New Zealand's first Toitū carbonzero bank. This means we've been assessed as carbon neutral through a third-party verification process, and have a clear emissions reduction plan in place."

Westpac NZ has also pledged to transition 100% of its car fleet to electric vehicles by 2025 and had completed its first 'sustainability-linked loan' with Contact Energy.

"We also want to make a positive difference in our capacity as a lender. Home loan customers can use our new $10,000 interest-free Westpac Warm-Up loans to add heat pumps, solar panels, ventilation, double glazing or insulation to their home, to increase energy efficiency and make their living environment warmer, drier and healthier.

"To date, we have received 2,531 applications and had $14.4 million drawn down.[vi]

"We've also got behind CoGo's Carbon Footprint Calculator, which allows users to have their carbon footprint estimated based on the spending data from their bank accounts. This empowers the user to make lifestyle changes to reduce their emissions profile.

"The great thing about both of these initiatives is that we're responding to an increasing expectation from customers that we should be helping them to take action on issues that matter to them."

Mr McLean said it was particularly pleasing that these achievements had occurred during a year of significant disruption.

"It shows that the drive towards achieving better environmental and community outcomes isn't mutually exclusive with responding to COVID-19.

"Companies need to be looking beyond the pandemic and shaping their businesses to be ready for tomorrow."