Westpac reported a net profit of A$5.7 billion for the year to September – an increase of 4.3 per cent over the previous year. On a cash basis, after excluding notable items, the bank’s profit fell 1 per cent to $5.3 billion.
The fall in cash earnings was largely the result of a turnaround in credit impairment, which went from a benefit of $590 million in 2020/21 to a charge of $335 million in the year to September. There was also a loss of earnings as the bank got out of several businesses.
Income: Net interest income rose 2 per cent over the year to $17.2 billion. Total net operating income fell 8 per cent to $19.6 billion.
The fall in income was due to lower non-interest income, resulting mainly from the sale of Westpac Life.
Expenses and cost to income: Operating expenses were cut 19 per cent to $10.8 billion. The cost-to-income ratio fell from 62.7 per cent to 55.1 per cent.
A big contributor to lower expenses was a 7 per cent reduction in staff numbers (full time equivalents) to 37,476.
Impairment expense: After reporting an impairment benefit of $590 million in 2020/21, thanks to the release of COVID-related collective provisions, the bank reported an impairment charge of $335 million in the year to September. The impairment charge represented 5 bps of average loans.
Credit quality: Mortgage delinquencies (90 days or more in arrears) fell 30 bps over the year to 69 bps. Other consumer loan delinquencies fell 19 bps to 1.6 per cent. Gross impaired exposures to gross loans fell from 30 bps to 20 bps.
Margin: The net interest margin fell 13 basis points to 1.93 per cent (on a cash basis, the fall was 17 bps to 1.87 per cent). All of the fall occurred in the first half, when rates were low and home loan competition intense. The margin increased 5 bps from 1.91 per cent to 1.96 per cent in the second half (on a cash basis, the increase was 5 bps to 1.9 per cent).
The bank said it expected the margin to be higher in the six months to March.
Return on equity: ROE rose 40 bps to 8.1 per cent. On a cash basis ROE fell from 7.55 per cent to 7.5 per cent.
Earnings per share: Cash EPS rose from $1.46 in 2020/21 to $1.48 in the year to September.
Dividend: The bank declared a dividend of 64 cents a share for the September half, fully franked, up from 61 cents a share in the March half. The total dividend payout for the year of $1.25 a share is up from $1.18 a share in 2020/21. The dividend payout ratio rose from 81 per cent to 83 per cent. Excluding notable items, the payout ratio rose from 62 per cent to 67 per cent.
The divisions: The bank’s biggest division, Australian consumer, made a profit of $3.3 billion – down 11.2 per cent from the previous corresponding period. The business banking division’s profit fell 14.7 per cent to $918 million. Westpac Institutional