Westpac net profit flat at $3.5b despite strong lending growth
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The news: Westpac has posted a $3.5 billion net profit, up just 1% on the first half last year but broadly in line with expectations, even as it reported improved earnings out of its retail bank and stronger business lending growth.
The numbers: Retail earnings were up 9% over the year to $1.18 billion on the back of 7% deposit and lending growth. The two sides of the book hit $745 billion and $890 billion respectively.
Over the year business and wealth deposits grew 5% with Westpac opening up 33% more transaction accounts. Business lending was up 16% driven by strength in the agricultural, health and professional services sectors.
As Westpac lifted provisions, net profit in the institutional arm fell 8% on the prior half. Pre-provision profit was up 1% as Westpac cut expenses ahead of modest income growth.
Net operating income of $11.3 billion declined 3% over the half, offset by a 5% reduction in operating expenses over the same period to $5.9 billion. This offset wage growth and increased investment in Westpac’s tech program Unite.
The bank recorded one notable item, $75 million in transaction costs related to its sale of the RAMS portfolio.
Westpac’s net interest margin (NIM) fell 6 basis points to 1.89%, slightly below expectation, and attributed to tighter lending and the changing interest rate environment.
Return on equity fell 31 basis points from the prior half to hit 9.6%. However, excluding notable items it rose to 11%.
Credit quality improved, as stressed exposures as a percentage of tangible common equity fell to 1.16%, down 20 basis points over the year.
The bank announced a 77 cents fully franked interim dividend.
What they said: Westpac chief executive Anthony Miller said there was momentum across the business.
“Growth is solid across lending and deposits, with several highlights. We grew Australian mortgages, excluding RAMS, in the half at 1.2x system, with the proportion of new first party lending increasing,” he said.
Looking ahead, he noted the bank was taking measures to bolster it as conflict in the Middle East clouds the outlook.
“Our strong balance sheet and disciplined focus will allow us to support customers through global uncertainty. Westpac is well positioned to deal with the impacts of ongoing conflict,” he said.
“While our customers are resilient and stress levels have declined, we’ve taken a prudent approach and increased our provisions.”
The context: Miller continues to drive a simplification campaign across the business, including the $1 billion-a-year United program to merge Westpac’s disparate banking platforms, and the abolition of its customer and corporate services arm, as first revealed by Capital Brief.
The source: ASX
