Westpac profit in H1 falls, but tops estimates

Westpac Banking Corp’s first-half profit topped analyst estimates as costs continued to decline, offsetting ongoing competition in mortgages and business lending.

Cash profit at Australia’s third-largest lender fell to A$3.1 billion (US$2.2 billion) in the six months to March 31, compared with the same period a year earlier, according to a statement yesterday. That beat the A$2.9 billion average estimate of six analysts surveyed by Bloomberg.

The result highlights a continued focus to simplify the bank, which is trimming costs and has split off non-core units.

That comes as profit margins face stress from competition on loans, a sign that last week’s tailwind to lenders from the first interest-rate hike since 2010 will not ease pressure against its peers.

“We’ve made steady progress towards our goals,” Westpac chief executive officer Peter King said in the statement. “We’re managing through the low-rate environment and making the changes required to become a simpler, stronger bank.”

Despite higher inflation and the start of interest-rate rises, the economic outlook is positive, and Westpac remains well placed for the period ahead, according to the statement.

Net interest margins, the closely watched ratio of the rate paid on deposits versus interest on loans, fell more than expected to 1.85%, due to competition across mortgages and business lending.

It was also impacted by the shift in the mix of the bank’s portfolio to lower spread products, particularly fixed rate mortgages, according to the statement.

With a headcount reduction of more than 4,000, Westpac is maintaining its target for a cost base of A$8 billion by the 2024 financial year, the statement said. Credit quality is continuing to improve and most metrics have returned to pre-pandemic levels.

“Costs were down significantly,” King said in a video Westpac released earlier.

Westpac will pay an interim dividend of 61 Australian cents per share, also higher than expectations.

“The outlook for 2022 is pretty positive actually,” King said in the video, referring to the Australian economy. “You’ve got low unemployment, we’ve got increased activity because hopefully we are through the worst of the Covid period, while noting that supply-chain issues remain.’’