Westpac 1H Profit Slides 5% — 2nd Update

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By Alice Uribe

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SYDNEY–Westpac Banking Corp. said its first-half net profit fell by 5% compared to the same time last year, as competition weighed on both the lender’s consumer and business units.

The Australian bank said its net profit totaled 3.28 billion Australian dollars (US$2.32 billion) in the six months through March.

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Cash earnings–a measure closely tracked by analysts that strips out non-core items such as revenue hedges and treasury shares–fell by 12% on year to A$3.10 billion. But when compared to the second half of 2021, cash earnings were up 71%.

“Cash earnings were higher over the previous half, including a material reduction in notable items. The decline in cash earnings over the year was mostly due to competitive pressures on net interest margins and returning to an impairment charge after having benefits last year,” said Chief Executive Peter King.

Directors of the company declared an interim dividend of A$0.61 per share compared to A$0.58 last year. Consensus forecasts compiled by Visible Alpha and cited by Citi projected Westpac’s first-half cash earnings would be A$2.8 billion, with an interim dividend of A$.59 per share.

Westpac’s consumer unit’s cash earnings fell by 15% on year to A$1.65 billion, which the lender said was mainly due to a lower net margin, as competition led to more fixed rate lending and lower card and personal loan balances.

Cash earnings at the lender’s business unit fell by 55% to A9 million mainly due to a A5 million turnaround in impairment charges, from a benefit to a charge, and lower margins, Westpac said.
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On a statutory basis, Westpac’s net interest margin–the difference between the interest income generated and the amount of interest paid out–was 1.91% down from 2.06% at the same time last year. This, the lender said, was partly due to lower spreads on mortgages and business lending, and a shift in its portfolio toward lower spread products, particularly Australian mortgage fixed rate lending.

On a cash earnings basis, Westpac’s net interest margin fell to 1.85%, from 2.09% in the previous year.

Australian bank NIMs have been under pressure amid the low interest rate environment which helped to drive a house price surge in Australia. This has spurred increased competition in the mortgage market between lenders, while also seeing margins squeezed.

But with the Reserve Bank of Australia last week raising its official cash rate to 0.35%, from a record-low 0.10%, some analysts say the country’s major banks may get a margin boost.

Mr. King said that “demand for housing has already shown some signs of easing and rising interest rates are expected to contribute to a moderation in house prices next year.”

Westpac expects the Australian economy to expand by 4.5% in 2022 but slow to 2.5% in 2023. Credit growth is forecast to be a strong 5.7% in 2022 slowing to 4.3% in 2023.

Westpac’s Common Equity Tier 1 capital ratio–a key measure of a bank’s ability to withstand financial shocks–was 11.3%. This was lower than 12.3% reported at September 2021. The lender said this was mostly due to its A$3.5 billion share buyback.

Westpac reported that its costs were down 27% or 10% excluding notable items, compared to the second half of 2021.

“This includes a reduction in headcount of more than 4,000 as we track toward our target of an A$8 billion cost base by FY 2024,” said the lender.

Write to Alice Uribe at [email protected]

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Credit: www.marketwatch.com /

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