http://nz.biz.yahoo.com//091104/3/fhi6.html

Westpac is underlining its commitment to New Zealand after a "challenging and disappointing" year in which the bank's cash earnings halved to $236 million.

Chief executive George Frazis said the structured finance tax case was a legacy issue the Westpac parent was dealing with.

"It has no impact in terms of our support to our customers and what our strategy is in New Zealand," he said.

The bank had $4 billion available for new lending in New Zealand and will open 10 new branches in the next calendar year. It was moving bankers from the back office to the front.

"We are putting back the bank manager in the community, with the skills and authority to play a leadership role," he said.

Westpac New Zealand's core earnings, before impairment charges, rose 4 percent to $901m in the year to September 30.

Impairment charges trebled to $572m, with two large names accounting for $199m. The bank is not naming them but it has been reported to have a $100m plus exposure to the collapsed Lane Walker Rudkin Group.

The bank is appealing a case it lost against New Zealand's Inland Revenue Department involving structured finance transactions and its Australian parent took an $A703m ($NZ891m) provision for this.

Its parent's accounts note that penalties are not provided for and the possible range of penalties is up to 100 percent of the primary tax in dispute, which is $NZ586m.

Mr Frazis said the peak of provisions for the New Zealand business was in the third quarter and provisions had stabilised in the fourth quarter.

"My sense is next year we will be in a better position on that but still at an elevated level," he said.

There were signs every day that the New Zealand economy was strengthening.

"Every day that goes by I get more and more confident we are seeing a turn around. I think it is still very fragile."

During the difficult period for the economy Westpac, which employs about 4600 people in New Zealand, made a conscious decision not to offshore work.

"We are keeping New Zealand jobs in New Zealand," Mr Frazis said.

The rise in core earnings was driven by a 7 percent rise in net interest income to $1.24b.

Loans and deposits grew 3 percent and 6 percent, respectively during the year, compared to the previous full year.

Mortgage growth moderated, rising 3 percent, as weaker economic activity dampened demand. Other consumer lending was largely unchanged, while business lending lifted a marginal 1 percent.

Deposit growth was "very solid", with virtually all the growth recorded in term deposits. The growth in deposits was sufficient to fund lending growth, Westpac said.

Non-interest income fell 4 percent over the year to $407m, due to lower transaction and activity fees given reduced customer and merchant activity.

The parent Westpac Banking Corporation's net profit was $A3.446b ($NZ4.36b), down 11 percent and it cut its dividend by 18 percent. Core earnings were up 19 percent.