Westpac reported net profit of A$4 billion for the six months to March 2023 – an increase of 22 per cent over the previous corresponding period. The bank said the improved performance reflected growth in home and business lending, plus a higher margin. Westpac has stopped reporting cash earnings, although it will continue to report notable items, “which represents items that management believes are not reflective of the group’s ongoing business performance”.
Income: Net interest income rose 10 per cent to $9.1 billion, compared with the previous corresponding period. Non-interest income fell 3 per cent to $1.9 billion. Total net operating income rose 8 per cent to $11 billion.
Expenses and cost to income: Operating expenses fell 7 per cent to $4.9 billion. The cost-to-income ratio was 45.3 per cent, compared with 52.5 per cent in the previous corresponding period. Excluding notable items, CTI fell from 52.8 per cent to 45.9 per cent.
Impairment expense: The credit impairment charge was $390 million – up from a charge of $196 million in the September half and $139 million in the March half last year. The ratio of impairment charges to average loans rose 6 basis points to 10 bps.
Credit quality: The proportion of mortgages in arrears (90 days or more past due) fell 14 bps to 68 bps. Consumer loan delinquencies fell 8 bps to 1.54 per cent. Gross impaired exposures to gross loans fell 3 bps to 20 bps.
Margin: Group net interest margin was 1.96 per cent – unchanged from the September half and up 5 basis points from the March half last year. The bank also reported core NIM of 1.9 per cent – up from 1.8 per cent in the September half and 1.7 per cent in the March half last year. Core NIM is calculated after adjusting for notable items and treasury and markets. The “exit NIM” was 1.88 per cent. Over the six months to March, deposit pricing contributed 20 bps to NIM.
Return on equity: ROE was 11.3 per cent – up from 6.9 per cent in the September half and 9.2 per cent in the March half last year.
Earnings per share: EPS rose 26 per cent year-on-year to 114.2 cents a share. EPS growth was higher than net profit growth because of the share buyback.
Dividend: The bank declared a fully franked interim dividend of 70 cents a share – up from the final dividend of 64 cents and interim dividend of 61 cents in the 2021/22 financial year. The dividend payout ratio is 61.3 per cent. The bank said it has raised its payout ratio target to 65 to 75 per cent.
The divisions: Westpac’s Australian consumer division made a profit of $1.8 billion – an increase of 7.1 per cent over the previous corresponding period. The Australian business banking division’s profit rose more than threefold to $851 million. Westpac Institutional Bank was up 87.6 per cent to $574 million. Westpac New Zealand fell from a profit of $602 million in the March half last year to $391 million in the latest half.
Market share: Australian home lending share fell from 21 per cent to 20 per cent over the 12 months to March, business credit share rose from 15 per cent to 16 per cent and credit card share was steady at 21 per cent. In New Zealand, consumer lending share was steady at 18 per cent and business lending share was steady at 16 per cent.
Capital: The common equity tier 1 capital ratio rose 95 bps to 12.3 per cent. The bank said it has $3.6 billion in excess of its capital requirements and will consider capital management initiatives to be announced with the full-year result.
Funding and liquidity: Average interest earning assets rose 7 per cent year-on-year to $934.2 billion. Total loans rose 4 per cent to $749.9 billion. Customer deposits rose 4 per cent to $627.6 billion. The deposit-to-loan ratio rose from 83.5 per cent to 83.7 per cent. The bank raised $20 billion of new long-term wholesale funding during the half. The liquidity coverage ratio was 135 per cent and the net stable funding ratio was 119 per cent.
Customer remediation: The bank paid $103 million to more than 500,000 customers during the half. Its remediation program appears to be winding up. It closed four programs during the half and allocated no provisions for customer refunds, payments or associated costs. Westpac total remediation cost since 2016/17 is $1.99 billion.
Staffing and branches: The number of full-time equivalent employees fell 1 per cent year-on-year to 38,503. Over the year to March, Westpac cut the number of branches in Australia by 15 per cent – from 781 to 666. Forty-six of its branches are now co-located, which means the various group brands provide branch services in the same location. New Zealand branch numbers remained steady at 114.