Massive drop in Westpac profits
WESTPAC’S yearly profits have been slashed by more than half with financial pain from the pandemic and a money-laundering scandal hitting the major bank’s bottom line.
The country’s second-largest banking group has posted a net profit of $2.29bn for its 2020 financial reporting period, a 66 per cent plunge on the previous year. Its cash earnings for the period dropped 62 per cent to $2.61bn.
Westpac said higher costs associated with the pandemic and the financial crimes watchdog slapping it with a $1.3bn fine for its money-laundering blunder in 2019 had hit performance.
However, the financial incumbent has decided to resume dividends, paying a final-year dividend to shareholders of 31c a share. In the first half of its financial year, Westpac suspended payments to preserve capital during the height of the economic downturn.
Westpac chief executive Peter King said the bank’s results were “disappointing”, noting high costs during an economic decline had weighed on its performance.
“2020 has been a particularly challenging year and our financial result is disappointing,” he said. “Our earnings have been significantly impacted by higher impairment charges, increased notable items and the sharp decline in economic activity.
“At the same time, we have incurred higher expenses due to increased resourcing to handle unprecedented COVID-19 demands and fixing our compliance issues.”
The bank said capital buffers remained robust, with decisions to resume dividends in line with guidelines set by the prudential regulator. Westpac is anticipating its financial performance will improve throughout 2021 and 2022.
Mr King noted impairment costs in the second half of the financial year had declined due to less one-off payments, and expected levels of bad debts were better than expected.
Westpac has 41,000 homeloan repayments on deferral due to the pandemic, which equates to about $16.6bn, and 4300 small business loans valued at $1bn remain suspended.
“We remain in an uncertain economic environment; however, the recent Budget has provided significant stimulus,” Mr King said. “Our economists expect at least half the personal tax cuts will be spent and businesses will respond to the generous depreciation allowances.”
Mr King, who became chief executive following the abrupt end of Brian Hartzer’s reign after the AUSTRAC scandal, said the bank was making progress in overhauling its risk compliance regarding anti-moneylaundering laws. “We’ve taken accountability for our mistakes and begun a process of fundamental change, which has included refreshing the board and management and elevating oversight,” he said.