Westpac New Zealands bounce back is quite a huge relief, says the Australian-owned banks chief executive.
The bank almost doubled its half-year profit to $583 million in the six months to March 31, compared to $297m a year earlier. The result was on the back of reduced provisions for bad loans after the economic effects of Covid-19 have so far proven less disastrous than first feared.
Compared to what I expected a year ago this is vastly different and quite a huge relief, said chief executive David McLean.
Last year we took a lot of provisioning for what we expected were going to be huge losses coming through the economy from Covid, and of course good health outcomes mean good economic outcomes mean that were not seeing that level of losses come through any where to that extent.
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The company clocked up an impairment charge of $211 million for the same period a year earlier, as opposed to a $99 million benefit.
So its an unwinding of those provisions which now obviously with the benefit of hindsight werent needed.
Westpac said things havent been as bad for the NZ economy as feared.
A decision about a possible sale of Westpac by its Australian parent was likely within two to three months, he said.
Westpac said in March it was considering a demerger of its New Zealand business.
Partly its driven by their own agenda over there, to simplify their business and get down to a smaller group of core businesses, and partly driven by looking with a hard-nosed rational view of whether youd invest in New Zealand under the new rules which include increased capital, and include outsourcing policy which means weve got to be a bit ring fenced from the parent, meaning its hard for them to get the synergies of running the two businesses very close together, McLean said.
Those policies are very similar to whats happened around the world so were not necessarily out of step with other countries on that, but it does mean theyre taking a hard-nosed look at it.
If Westpac Australia decided to proceed, it was likely to be a sale to shareholders rather than a private buyer.
David McLean says the time is right for him to step aside.
The word they used was demerger, and I think that signals if they were to do it, how theyd be likely to do it would be to just issue all the shares in the New Zealand company to their own shareholders.
McLean said Westpac NZ was prioritising independent reviews of its liquidity risk management and risk governance, as required by the Reserve Bank of New Zealand.
A team has been established to work solely on these reviews. Weve been focussing on these areas for some time and are now adding even more resources.
Lending increased 4 per cent over the half year. McLean said Westpac had lent money to first-home buyers of 3512 homes, up 35 per cent year-on-year.
The bank did not expect to see the housing market continue at current high levels, partly as a result of Government policies to dampen down investor activity.
Were expecting a much lower growth in the housing market over the next year than we’ve seen in the last year, and I think that quite frankly thats probably a good thing, he said.
The biggest danger for us is that theres a massive downward correction in house prices, for example. And thats a much bigger factor for us than any increased profit we get from increased prices.
McLean announced his retirement, to take effect June 25.
I have been in this role for nearly seven years and have come close to equalling the record tenure of our former chief executive Harry Price.
Its the right time, both for the business and for me personally. The industry is going through a period of change and now is an appropriate time for a new leader to take the helm, and guide the organisation into the future, he said.
One of the things that I have found most satisfying in my time at Westpac is seeing the successful achievements of so many of our customers, and knowing that we have a played a small part in helping them achieve that success.
I am also proud, in my time as CEO, of the work we have done championing diversity and inclusion; publishing our gender pay gap; embedding a new focus on culture and conduct; becoming the first New Zealand bank to be Living Wage accredited; and for rallying together to help the economy through the darkest days of the Covid-19 pandemic. Most of all, I will miss working with the wonderful team at Westpac.
But I am looking forward to thinking about the possibilities and challenges ahead. Ive just finished two weeks touring the country on my Vespa in a charity rally, which gave me plenty of time to reflect and consider what retirement might hold for my family and I.

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