Westpac profits jump 22% to $4b as it dumps cost-cutting target

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As markets focus on banks’ margin performance, Westpac said its net interest margin (NIM) – which compares funding costs with what the bank charges for loans – was flat compared with the September half, at 1.96 per cent.

Margins were last year driven higher by interest rate rises, but are now being squeezed by stiff competition for loans and deposits, and Westpac its NIM had peaked last October. The bank said its margin “remains lower than historical levels,” and King flagged pressure on margins and slower loan growth in its second half.

“Credit growth – both housing and business – will ease. Intense mortgage competition is expected to negatively impact industry and Westpac’s margins in the next half,” King said.

The results showed rate rises and inflation were starting to take a growing toll on customers, with impaired loan charges of $390 million or 0.1 per cent of average loans, up from 0.04 per cent a year earlier.

It reported a slight increase in the number of customers who were 30 days or more behind on their repayments, but the more closely-watched figure of 90 delinquencies fell from 0.8 per cent to 0.68 per cent.

Return on equity rose to 11.3 per cent, and the bank will pay an interim dividend of 70c a share, which is 15 per cent than last year.

Westpac has been through a period of major change under King, who has focused on cutting costs, improving operational performance and compliance since his appointment in late 2019. King said the result showed it was making progress in becoming a “simpler, stronger bank,” and it was entering a new strategic phase in which it would put more emphasis on growth.

“The progress we have made sees us in a position to increase our growth aspirations over time in key markets such as business lending, while managing downside economic scenarios,” King said.

More to come