By Alice Uribe
SYDNEY–Westpac Banking Corp. said its annual net profit rose by 4.0%, as the company lifted its cost target due to the impact of higher inflation.
Westpac said its net profit totaled 5.69 billion Australian dollars (US$3.59 billion) in the 12 months through September, underpinned by its ongoing simplification plan and a focus on core banking. Analysts had expected a full-year net profit of A$5.47 billion, according to FactSet’s consensus estimate.
“Westpac returned to growth in our key segments of Australian mortgages and business lending,” said Chief Executive Peter King. “In the second half, our banking divisions delivered strong growth in core earnings on the back of good cost and margin management.”
Cash earnings–a measure tracked closely by analysts- fell 1% to A$5.28 billion.
Last month, Westpac flagged it expected to take a hit of A$1.3 billion to its reported net profit and cash earnings in the second half of the 2022 fiscal year due to a range of notable items.
Directors of the lender declared a final dividend of A$0.64 per share, up from A$0.60 per share a year ago.
While Westpac said annual expenses excluding notable items fell by 7% on-year as it worked to simplify its business, it revised its fiscal 2024 cost target to A$8.6 billion. It had previously targeted an A$8 billion cost base by that year.
Westpac attributed this to the impact of higher inflation, including wage increases from a tight labor market and continuing regulatory spend.
The lender’s full-year net interest margin–a key profitability indicator–fell 17 basis points to 1.87%. Westpac noted that while margins increased 5 bps in the second half to 1.90% compared to the first half, they remain below historial levels.
“Our mortgage book is growing in line with major bank system and time to approval has reduced. We have more work to do on investor mortgages but we’re growing in business lending and results in the institutional bank have been strong, with loans up 26% year-on-year,” said Westpac.
The lender said its balance sheet was in good shape and that it was well-prepared going into 2023. Its closely watched Common Equity Tier 1 capital ratio was 11.3% at the end of September. This was down on the previous year, when it had a 12.32% CET1 capital ratio.
Westpac hasn’t yet seen increases in hardship or stressed assets, although it was inevitable that the impact of higher interest rates would be felt, Mr. King said.
“The biggest challenge for the authorities is to contain the high inflation psychology that is now taking hold in the economy,” he said. “In Australia, consumer spending is resilient but as higher rates bite, we expect the heat to come out of the economy and inflation pressures to ease. Small business is one sector we are watching closely as consumption slows.”
Mr. King said he expected falls in housing prices would continue in 2023, with slow GDP growth and an increase in unemployment, as authorities continue to try to lower inflation.
Write to Alice Uribe at alice.uribe@wsj.com
(END) Dow Jones Newswires
November 06, 2022 16:54 ET (21:54 GMT)
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Read More: Westpac Annual Net Profit Rises 4% — Update