Westpac's New Zealand division has posted a 4 percent fall in annual earnings as lenders give up margin in the hunt for mortgage customers.
Cash earnings, the favoured measure of the Australian-owned lenders, fell to $872 million in the 12 months to the end of September from $905m a year earlier, it said.
Net interest income edged up 2 percent to $1.71 billion, with the bank's New Zealand loan book expanding 9 percent to $75.1b over the period, though net interest margins shrank 12 basis points to 2.13 percent.
"Intense competition for new lending and a shift to lower-spread fixed-rate mortgages has compressed margins," Westpac said. "Weak financial conditions in the dairy sector drove stressed assets to TCE [total committed exposure] up 94 basis points to 2.54 percent."
Last week BNZ and ANZ's NZ division also reported declines in annual earnings, with both registering a 12 basis point decline in net interest margins due to the heightened mortgage competition and higher cost of raising funds overseas. Commonwealth Bank of Australia's ASB Bank division will provide a quarterly update this week.
Westpac's New Zealand operation also faced a 5 percent increase in operating expenses to $919m and impairment charges for bad debts jumped 26 percent to $59 million, largely due to "higher stress in the dairy portfolio and a lower level of writebacks and recoveries", it said.
The New Zealand operation contributed AU$812m, or 10 percent, to the group cash earnings of AU$7.82b, which was largely unchanged from a year earlier.
It's New Zealand mortgage book grew 7 percent to $45.1b, while business lending climbed 12 percent to $28.4b and deposits climbed 11 percent to $57.5b.
In a presentation to investors, Westpac said its impaired dairy assets in New Zealand remain low, though a quarter of the portfolio was 'stressed' compared to 10 percent at the end of March.