Westpac reported a net profit of A$3.3 billion for the six months to March – a fall of 5 per cent compared with the previous corresponding period but up 63 per cent on the September half last year. After adjusting for hedges, cash earnings of $3.1 billion were down 12 per cent year-on-year but up 71 per cent half-on-half.
Income: Net interest income fell 1 per cent year-on-year to $8.3 billion. Net operating income fell 4 per cent to $10.2 billion.
Expenses and cost to income: Operating expenses were cut 10 per cent year-on-year to $5.4 billion (27 per cent down on the September half). The cost-to-income ratio fell from 56.1 per cent in the March half last year to 52.5 per cent in the latest half.
Impairment expense: After benefiting from releases from its collective provision in the previous two halves, the bank reported an impairment charge of $139 million. New individually assessed provisions of $97 million were offset by write-backs of $64 million and recoveries of $102 million. Collectively assessed provisions increased by $208 million. Overlays were increased to reflect uncertainty arising from supply chain disruption, labour shortages and inflation.
Credit quality: Mortgages in arrears by 90 days or more fell from 1.1 per cent in the March half last year to 99 basis points in the September half and 82 bps in the latest half. Gross impaired exposures to gross loans fell from 30 bps to 23 bps year-on-year. Total stressed exposures to total committed exposures fell from 1.6 per cent to 1.1 per cent. Delinquent consumer loans fell from 1.9 per cent to 1.6 per cent.
Margin: The net interest margin fell 15 bps to 1.91 per cent. The biggest drag on the margin was home loan pricing and growth in low-margin fixed rate loans.
Return on equity: ROE fell 67 bps year-on-year to 9.25 per cent. On a cash basis, ROE was 8.7 per cent.
Earnings per share: EPS fell 4 per cent year-on-year to 90.5 cents a share but rose 65 per cent half-on-half.
Dividend: The bank declared an interim dividend of 61 cents a share – up from 58 cents a share in the March half last year and 60 cents a share in the September half. The dividend payout ratio was 65.1 per cent.
The divisions: The biggest of the bank’s divisions, Australian consumer, made a cash profit of $1.6 billion – down 15 per cent from the previous corresponding period. The business banking division’s cash profit fell55 per cent to $239 million. Westpac Institutional Bank profit rose 3 per cent to $306 million. Westpac New Zealand was up 10 per cent to $597 million.
Market share: Australian mortgage market share fell from 22 per cent to 21 per cent. Australian retail deposit share was steady at 20 per cent. Business credit share was steady at 15 per cent. In New Zealand, consumer lending share was steady at 18 per cent, deposit share was steady at 18 per cent and business lending share fell from 17 per cent to 16 per cent.
Capital: The bank’s common equity tier 1 capital ratio has fallen from 12.34 per cent in the March half last year to 12.32 per cent in the September half and to 11.33 per cent in the latest half.
Liquidity and funding: Total assets grew 8 per cent year-on-year to $964.7 billion and loans grew 5 per cent to $719.5 billion. Deposits and other borrowings grew 10 per cent to $645 .6 billion. Customer deposits accounted for 65.7 per cent of the group’s total funding. The bank raised $21.8 billion of long-term wholesale funding during the half. The bank’s liquidity coverage ratio is 137 per cent and its net stable funding ratio is 125 per cent.
Customer remediation: The bank paid or offered $378 million to 475,000 customers during the half. It paid out $440 million in the 2020/21 financial year. While other banks have reported that their remediation programs are winding down, Westpac’s appears to be growing. Since the program started in 2017 it has paid out around $1.9 billion.