Westpac boss tips house price falls of up to 15pc
Westpac reported fewer borrowers falling behind on repayments, and King highlighted the historically low unemployment rate; the fact 70 per cent of customers were ahead on their repayments; and the bank’s stress testing of borrowers against higher interest rates. “The mortgage book itself looks really healthy,” he said.
Westpac has been under pressure over poor performance in recent halves, but on Monday it lifted investors’ spirits when it reported higher-than-expected cash profits of $3.1 billion, an annual decline of 12 per cent. Shares in the bank jumped 3 per cent to $24.54.
A highlight for investors was King’s commitment to stand firm on a previously announced plan to slash Westpac’s cost base to $8 billion by 2024, despite market scepticism over the goal.
King, who has been cutting expenses as part of a turnaround plan, said the bank’s costs were 10 per cent lower excluding “notable” items.
Westpac said its “head count” dropped by about 4000 in the half, comprising a 2359 slide in the number of employees and contractors, and a 1195 decline in “third party” workers such as consultants.
Revenue fell 3 per cent and net interest margins — which compare funding costs with what banks charge for loans — dropped to 1.85 per cent compared with 1.99 per cent in the September half. Even so, Westpac signalled the outlook for margins was improving.
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The board lifted the bank’s interim dividend to 61¢, which will be fully franked and paid on June 24.
White Funds Management managing director Angus Gluskie said the higher dividend was a positive, as was the bank’s expectation of wider margins, but its cost-cutting was the reason for the share price jump. “I think the reaction today is more about expenses, which is where we’ve got some greater clarity,” Gluskie said.
Citi analyst Brendan Sproules said Westpac investors would be breathing a “sigh of relief” after National Australia Bank and ANZ Bank last week walked away from cost-cutting targets.
Banks have also faced pressure to lift deposit rates for savers and King said its move to lift rates on several products last week would benefit 1.3 million people. “We’re just seeing rates reset. There has to be higher rates for borrowers and some better returns for savers,” he said.
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