The shareholder-friendly consequences of the pricing power of dominant banks was on display in Westpac's half-year profit, released on Friday, with the bank opting for a special dividend that will lift its payout ratio to an effective rate of 84 per cent.The stand-out feature of the result is the special dividend of 10 cents that will chew through some of the surplus of franking credits without affecting the bank's target capital ratio of 8.5 per cent (with an actual capital ratio at March of 8.7 per cent).The bank's management has delivered on strategic shift over the last year to focus on returns and to downplay growth, though there are indications it may try to reverse over the balance of 2013 as it attempts to once again match system credit growth.Westpac cut its headline home loan rates by only 95 basis points during 2012, compared with cuts by most lenders of, on average, 100 basis points (on Reserve Bank of Australia data) and compared with the cut in the RBA cash rate of 125 bps last year.Another highlight of the result is the very low impairment charge, which is at a level in line with that of the boom year of 2006.Gail Kelly, the bank's chief executive, said on Friday: "You will recall that this time last year, when our return and equity stood at 15.1 per cent, I commented that we were going to put a line into the sand with regard to return on equity and work really hard to manage our return on equity so that it did not fall below the 15 per cent mark."The bank's ROE was 16.1 per cent in the March 2013 half.Kelly put the higher ROE down to discipline regarding net interest margins, increased cross-selling and cost savings from workflow reform.Phil Coffey, the chief financial officer, put the rise in ROE down to "positive contributions from the revenue line more than offsetting expenses.""With net interest income accounting for almost 70 per cent of revenue, clearly margins play a big role in returns. "It's been a key focus for us… discipline on margins is even more important. At the full year last year we indicated that the margin trajectory was likely to be broadly flat in 2013. Margins were a little higher in the half versus the prior period, as the loan repricing we did early in the half allowed us to catch up on the rise in funding costs that occurred through most of 2012. Coffey said that customer deposits "continued to be a drag [on margins] as competition remains intense."He said most of the bank's new deposit flow came onto the balance sheet at a lower spread than the portfolio average. On credit quality, Coffey said the "credit risk and the story continued to improve for the fifth half in a row, with a 23 basis points decline in stress assets over the last six months.""The decline can be traced back to an improvement in the business book, which has led to