Although impairment charges of $22 million for the second half were up on the $4 million in the previous half, there was a 78% drop in the annual figure to $26 million compared with the previous year.
Acting chief executive David McLean said the strong performance also benefited from Westpac's targeted growth in a competitive marketplace.
Total lending for the year was up 5% to $3 billion, with mortgages increasing 6% to $2.1 billion, driven by good growth in mortgages with loan-to-value ratios of less than 80%.
Business lending also increased by $800 million, or 4%, with agricultural lending particularly strong.
Deposit growth of 6% funded more than 90% of lending, delivering a deposit-to-loan ratio of 76.5%, he said.
Deposit growth was driven by transaction and call products, which were up 12%, mainly in online deposits.
The net interest margin fell slightly to 2.27% during the year, partly due to the inclusion of additional treasury assets in the results.
Wealth balances grew strongly, up 24% to $7.2 billion, with a 33% increase in KiwiSaver.
The number of Westpac New Zealand customers with a wealth product increased to nearly 28% in the period, Mr McLean said.
In a year that had seen a substantial increase in digital banking and a move to greater self-service, Westpac continued to invest in capacity.
The new self-service model continued to be rolled out across New Zealand. The bank now had 133 smart ATMs, the largest number in the country.
The machines were taking 27% of deposits, of which 34% were after hours.
The bank's new internet banking platform included the ability to apply for home loans, credit cards and personal loans with a 60-second conditional decision response, he said.
''It can now originate 14 product groups online, which has resulted in 10% of all home loans, 39% of personal loans and 40% of credit cards being applied for online in the second half of the financial year.''
Looking ahead, Mr McLean said the country's broad-based economic expansion had continued, although the pace of growth had slowed from its peak.
Falling dairy and forestry prices presented a challenge for some regions but the booming construction sector - not just in post-quake Canterbury - continued to support economic growth, he said.
The New Zealand Westpac unit contributed 10.4% to the Australian-based Westpac group's record profit of $A7.6 billion ($NZ8.5 billion).
Westpac, Australia's second largest bank, announced a final fully franked dividend of A92c per share, taking total dividends for the year to $A1.82, up 5% on the previous year.
Westpac's dual-listed shares were unchanged at $38.92 on the NZX, and last traded at $A34.78 on the ASX.
Westpac, the latest of the big four banks to deliver bumper profits, said its good result was driven by a strong performance in its flagship retail banking business.
Chief executive Gail Kelly said Westpac's Australian financial services division, which housed its core home lending and business lending arms, had a particularly strong year, with profits growing at double digit rates within the division and customer numbers up 6%.
''We provided more than $A87 billion in new lending to Australian retail and business customers over the year, while growing in line or above system across all key markets in the second half,'' she said .
Last week, ANZ New Zealand, the country's biggest lender, reported a 17% rise in annual earnings and the Bank of New Zealand reported a 2.4% rise.
