Westpac’s profit growth disappoints

SYDNEY: Westpac Banking Corp posted a lower than expected 3% rise in annual cash profit and a drop in profitability, with hesitant consumers and a tepid economy weighing on the growth prospects of Australia’s second biggest lender.

Australia’s “Big Four” banks are still earning record profits led by modest lending growth and a focus on costs but they are now starting to feel the impact of cracks in the property market, weak retail sales, heightened competition and an increased regulatory burden.

Westpac reported yesterday a record cash profit of A$8.06bil (US$6.17bil) for the year ended Sept 30, up from A$7.82bil a year ago. That narrowly missed the A$8.12bil average estimate of seven analysts polled by Reuters.

Cash profit, a measure that excludes oneoffs and non-cash accounting items, is closely watched by investors.

Westpac’s net interest margin, a barometer of profitability, was down 4 basis points to 2.06%, as competition eroded the benefits of an industry-wide move in July to increase mortgage rates.

The modest rise in cash profit and the weaker net interest margin at Westpac mirrored those at rival National Australia Bank Ltd which released its financial results last week.

“The positive signs of resources services and infrastructure will support growth ... (but) with household incomes flat and rising energy costs it’s hard to see consumer spending rising strongly,” Westpac chief executive Brian Hartzer told analysts on a call after the results yesterday. Westpac shares were down 2.4% in early afternoon trading in a broader market that was 0.16% lower.

“Margins in the second half were not as good as they should have been,” said Omkar Joshi, portfolio manager at Regal Funds Management, which owns shares of Westpac. “They are doing what they can in a tough environment, but there’s nothing that looks too great in the outlook.”

Ernst & Young estimates the combined net interest margin reported across the “Big Four” banks was 4.5 basis points lower in the last financial year, as asset repricing was offset by competition, funding costs and the impact of a new government-imposed bank levy.