Westpac reported a net profit of A$3.4 billion for the six months to March – an increase of 189.2 per cent over the previous corresponding period. Cash earnings were $3.5 billion.
The increase was due to a big turnaround in impairments, with the bank booking an impairment benefit, and a big reduction in notable items.
Income: Net interest income of $8.3 billion was down 7.3 per cent, compared with $9 billion of net interest income in the previous corresponding period. Including fee income, wealth management and insurance income and trading income, total net operating income was $10.7 billion – up a little from $10.6 billion in the previous corresponding period.
Expenses and cost to income: Operating expenses fell 3 per cent to $5.9 billion. The cost-to-income ratio dropped to 56.12 per cent, a big fall from 68.46 per cent in the September half and down from 58.29 per cent in the previous corresponding quarter.
Impairment expense: After taking impairment charges of $2.2 billion in the March half last year and $940 million in the September half, the bank released some of its collective provision and booked an impairment benefit of $372 million.
Credit quality: Gross impaired exposures as a proportion of gross loans remained unchanged year-on-year at 30 basis points. The proportion of mortgages in arrears by 90 days or more rose from 87 bps to 1.1 per cent year-on-year.
Margin: The bank’s net interest margin fell from 2.13 per cent in the market half last year to 2.03 per cent in the September half before recovering to 2.09 per cent in the latest half. Lower deposit rates and lower funding costs were the biggest contributors to the improved margin.
Return on equity: ROE was 9.9 per cent, compared with 3.5 per cent in the previous corresponding period.
Earnings per share: EPS rose from 33.2 cents a share in the March half last year and 30.5 cents a share in the September half to 94.5 cents a share in the latest half.
Dividend: The bank declared a fully franked interim dividend of 58 cents a share, after not paying a dividend in the March half last year. The dividend payout ratio is 60 per cent of cash earnings. Based on the bank’s share price at March 31, the dividend represents a yield of 4.8 per cent. After payment of the dividend the bank will have a franking account balance of $3.6 billion. The bank is offering a dividend reinvestment plan with no discount.
The divisions: Westpac’s biggest division, consumer banking, made a cash profit of $1.7 billion for the March half – an increase of 12 per cent compared with the previous corresponding period. The business banking division’s cash profit rose 58 per cent to $895 million. Westpac Institutional Bank’s profit rose 74 per cent to $256 million. Westpac New Zealand profit rose 94 per cent to $555 million.
Market share: The bank’s share in the Australian housing finance market fell from 23 per cent to 22 per cent year-on-year. Its credit card share fell from 23 per cent to 22 per cent. Household deposit share fell from 22 per cent to 21 per cent and business deposit share fell from 20 per cent to 19 per cent. Its business credit share fell from 16 per cent to 15 per cent. Its share of New Zealand consumer lending remained steady at 18 per cent.
Capital: The bank’s common equity tier 1 capital ratio rose from 10.8 per cent in the March half last year to 11.1 per cent in the September half and 12.3 per cent in the latest half. Westpac CEO Peter King said there was scope for a return of capital but the bank will wait for the finalisation of APRA’s review of its capital adequacy rules before making any decision.
Liquidity and funding: Customer deposits make up 65.7 per cent of the bank’s funding – up from 62.7 per cent in the previous corresponding period. Sixty per cent of deposit are paying interest at or below 25 bps. At March 31 the bank’s term funding facility was $30 billion and it had drawn down $22 billion. The bank’s chief financial officer Michael Rowland said he expected to draw down the balance before the scheme ends in June. The liquidity coverage ratio is 124 per cent and the net stable funding ratio s 123 per cent. The bank has $84.9 billion of wholesale funding (10 per cent of total funding) maturing in the next 12 months.
Customer remediation: The bank paid more than $200 million to 570,000 customers during the half. The total cash earnings impact of customer refunds and payments, and associated costs, since 2017 is $1.9 billion.