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Westpac’s performance is showing signs of rapid growth. For the six months ended 31 March 2007, its total interest income surged 20% to A$10.49 billion, while the net interest income after loan loss provision increased 7% to A$2.86 billion. The rise can be primarily attributed to sturdy growth across Australian banking, with strong performance of wealth management business aiding the company to deliver solid results. Net income tally also observed an improvement of 12% to A$1.64 billion, however the rise was partially offset by higher salaries & other staff expenses and drop in net interest margin by 16 basis points.
The bank is currently very close in obtaining a banking license in China, which will allow it to open a branch in Shanghai. It is speculated that China Banking Regulatory Commission has given its preliminary approval, with a formal signing expected soon. Given the relatively closed state of Chinese economy, the license will provide Westpac a major boost for its international operations and also provide the company a foothold in the fastest growing economy in the world.
The recent U.S. services industries and productivity figures have abated the concern for the short term that the world's largest economy is slowing, which has created a positive impact on primarily the international banking stocks as US is the key market in the banking space. Moreover, the Australia's central bank slashed its forecast for inflation in 2007, signaling it may not raise interest rates this year also is creating a positive environment for Westpac. The company is also benefiting from a huge demand for loans from companies, growing at the fastest pace since 1989, aiding Westpac to increase its market share in corporate lending. However, the only concern remains the New Zealand business that is facing some tough times. Still considering the favorable environment, the strong growth of Australian financial markets, with the benchmark Australian index mounting swiftly and more importantly strong fundamentals of Westpac makes it a healthy investment for the rest of the year.