SYDNEY - Westpac, one of Australia's major banks, has reported a 26% rise in its annual net profit, driven by growth in key divisions. The company has also announced a share buyback program worth AUD 1.5 billion (USD 980 million) and an increase in dividend.
Strong Financial Performance
In the 12 months through September, Westpac recorded a net profit of AUD 7.2 billion, meeting analysts' expectations. The CEO, Peter King, expressed satisfaction with the results, stating that they reflect improved returns on equity and earnings per share. King attributed this success to the growth in key markets, including deposits, mortgages, and institutional banking.
Although Westpac had previously indicated a hit to its net profit due to a range of notable items, including customer refunds provisions, the bank's capital position remained above regulatory requirements. This allowed Westpac to increase its dividend and proceed with the share buyback program. At the end of September, the common equity tier 1 capital ratio stood at 12.4%, representing a 109 basis points increase over the previous year.
Focus on Efficiency
While the bank's operating expenses decreased by 1% to AUD 10.69 billion, CEO Peter King acknowledged the need to further reduce the cost-to-income ratio compared to industry peers. Future efforts will be focused on optimizing operational efficiency.
Improved Profitability and Lending Dynamics
Westpac's full-year core net interest margin, an essential profitability indicator, increased by 12 basis points to 1.87%. This growth was driven by higher returns on capital balances and increased deposit spreads. However, tighter loan spreads resulting from intense competition partly offset these gains.
Overall, Westpac's strong financial performance positions the bank for continued growth and reinforces its commitment to enhancing shareholder value.
Westpac's Earnings Growth Outlook
Consumer Unit Performance
In the consumer unit division, Westpac witnessed a 7% decline in net profit compared to the same period last year, amounting to A$3.05 billion. Despite this, net loans increased by 4%, deposits grew by 10%, and impairments remained relatively stable. However, the results were impacted by a 6% increase in expenses.
Business Division Highlights
Westpac's business division experienced a substantial increase in net profit, rising by 77% to A$1.63 billion. Net loans also showed a positive trend, growing by 5%. The institutional bank division contributed to the overall success with a net profit rise of 54% to A$1.06 billion. This growth was supported by a 9% increase in loans and strong growth in financial markets income.
Managing Hardship Levels
Despite the ongoing uncertainties in the economic outlook, Westpac highlighted that hardship levels remained relatively low, standing at approximately half the numbers observed during the pandemic. The lender added that there had not been significant increases in customers falling behind on repayments.
Economic Outlook and Future Prospects
While inflation pressures have eased, there are still some uncertainties in the economic outlook. King, a representative from Westpac, emphasized that crucial factors to monitor are employment and productivity in Australia. Although the jobs market has shown resilience, it will face tests in 2024. Moreover, consumer sentiment remains weak; however, there are signs of hope as some cost pressures for businesses are starting to alleviate, which should eventually benefit consumers.
In summary, Westpac is cautiously optimistic regarding the economic outlook for the next year.