Michael Rowland, CFO, Westpac
Westpac reported net profit of A$2.3 billion for the year to September – a fall of 66 per cent compared with the previous corresponding period.
The heavy fall was due in part to a number of notable items, including $1.4 billion for Austrac proceedings, $440 million for customer remediation, $614 million for write-downs of intangibles and $123 million for asset sales and revaluations.
On a cash basis, profit was down 62 per cent to $2.6 billion. Cash earnings excluding the notable items listed above fell 34 per cent to $5.2 billion.
Income: Net interest income of $16.7 billion was down 1 per cent compared with the previous year (the second half was down 14 per cent on the first half). Net fee income fell 4 per cent to $1.6 billion, wealth management and insurance income fell 27 per cent to $71 million and trading income fell 4 per cent to $895 million. Total net operating income fell 2 per cent to $20.2 billion.
Expenses and cost to income: Operating expenses rose 26 per cent year-on-year to $12.7 billion. The cost-to-income ratio rose from 48.9 per cent in 2018/19 to 63.1 per cent in the year to September (61.6 per cent on a cash basis). Higher costs included costs associated with Austrac proceedings.
Impairment charge: Charges for bad and doubtful debts and expected losses rose fourfold from $794 million in 2018/19 to $3.2 billion in the year to September. The ratio of impaired assets to gross loans rose from 25 bps to 40 bps.
Credit quality: Asset quality deteriorated, with stressed exposures as a percentage of total committed exposures rising 71 basis points to 1.91 per cent over the year. The proportion of mortgages in arrears by 90 days or more rose 68 bps to 150 bps. Consumer loan delinquencies rose 40 bps to 209 bps.
Margin: The net interest margin averaged 2.03 per cent over the course of the year – down 9 basis points from the previous year. It averaged 1.8 per cent in the September half. On a cash earnings basis, NIM averaged 2.08 per cent over the year and 2.03 per cent in the September half.
Return on equity and assets: ROE fell from 10.6 per cent to 3.4 per cent year on year (3.8 per cent on a cash basis). It fell further in the September half to 3.2 per cent (it rose to 4.7 per cent on a cash basis).
Earnings per share: EPS fell 68 per cent from 196.5 cents a share in 2018/19 to 63.7 cents a share in the year to September.
Dividend: The bank declared a final dividend of 31 cents a share, fully franked. There was no interim dividend. The bank paid a dividend of $1.74 a share in 2018/19. The dividend payout ratio was 101.6 per cent for the September half (69.3 per cent on a cash basis) and 48.9 per cent for the year overall (42.9 per cent on a cash basis).
The divisions: Westpac’s biggest division, the Australian consumer division, reported net profit of $2.7 billion for the year to September – down 12 per cent from the previous corresponding period. The Australian business division’s profit fell 62 per cent to $734 million. The New Zealand division’s profit fell 38 per cent to $612 million. Westpac Institutional Bank’s profit fell 64 per cent to $332 million.
Market share: In the Australian consumer division, net loans fell by 2 per cent, or $9.5 billion, to $389.8 billion over the year. Mortgage balances fell by $6.2 billion to $382.4 billion and personal lending fell 2.8 billion to $9.3 billion. Business loan balances fell 4 per cent to $140.7 billion. Australian housing finance share fell from 24 per cent to 23 per cent, business credit share fell from 17 per cent to 16 per cent and credit card share fell from 23 per cent to 22 per cent.
Capital: The bank’s common equity tier 1 capital ratio was 11.1 per cent at the end of September – up from 10.7 per cent a year earlier. CET1 will increase to 11.2 per cent after the bank receives the proceeds of sale of its Zip Co shares.
Liquidity and funding: At September 30 the bank’s liquidity coverage ratio was 150 per cent and its net stable funding ratio was 122 per cent. The bank received an allowance of $19.7 billion under the Reserve Bank’s term funding facility and at September 30 had drawn down $17.9 billion. The bank did not access term wholesale funding markets in the September half, following the introduction of the TFF. Customer deposits increased by 5.9 per cent to $555.4 billion, accounting for 65 per cent of total funding.
Customer remediation: The bank has increased its provision for refunds, repayments, associated costs and litigation provisions by $182 million after tax. The bank booked $258 million after-tax for estimated customer refunds and associated costs in the March half. Total remediation costs add up to around $2.4 billion.
COVID relief measures: The bank provided deferrals on $54.7 billion of mortgages and $10.21 billion of business loans. By mid-October, there were $16.6 billion of mortgage deferral packages outstanding (representing 4 per cent of the portfolio) and $1 billion of business loan deferral packages outstanding (representing 2 per cent of the book).