Westpac chief executive Gail Kelly was keen to present the institutional division's result for the March half as a strong result, despite the flagging earnings. The division's cash earnings of $260 million were six per cent below earnings for the March half last year. The division was hit hard by an increase in its impairment charge from $11 million to $127 million. Most of that increase was due to provisions against a small number of individual names. A large financial institution exposure was impacted by the current market dislocation and large corporate exposure also deteriorated during the half. The bank noted that it has upgraded the credit quality of some institutional customers and that this partly offset the downgrades driving higher provisions. The margin lending portfolio experienced one significant impairment charge over the half. Business banking, by contrast, has only improving measures of credit quality; delinquencies in that segment fell to 0.59 per cent of loans, down three basis points over six months. The head of institutional banking Phil Chronican said: "In February and March we have had no new exposures come on to our watch list. We are not seeing major new deteriorating credits. "We are dealing with the problems that emerged in December and January. We will be working through those situations in the second half." Leaving aside the credit quality issues, the division's net operating income was up 26 per cent, deposits were up 12 per cent and net loans were up 35 per cent. The return on equity in this business, though, was only 13 per cent in the March 2008 half, according to estimates by Wilson HTM. By contrast the ROE in the consumer business exceeds 30 per cent. Chronican does not expect the big demand for institutional lending to continue: "Over the past six to nine months we have had reintermediation. We suspect that process will see itself through in the current half. "Underlying demand for credit is probably lower and will be more modest next year." Kelly said the institutional bank had been prudent in handling demands for credit: "With significant demand for credit Phil and his team have been mindful of quality and pricing. He has been very disciplined." Kelly denied any suggestion that the bank was rationing credit: "We don't use that word. At the institutional end we are very thoughtful about the quality of the business. "On some occasions a customer may go somewhere else."