Westpac has reported a net profit of $4.0 billion in its half-year results published on Monday, a 22 per cent increase on the same period a year earlier.
The bank reported that its return on equity was up 205 basis points on the previous period to 11.3 per cent, while earnings per ordinary share were up 26 per cent to 114.2 cents.
“Our first half result reflects the progress we’ve made in becoming a simpler, stronger bank. Disciplined cost and margin management has lifted our return on equity and allowed us to increase dividends to 70 cents per share,” said Westpac chief executive officer Peter King.
“We’ve grown in a disciplined way in mortgages, performed well in business and institutional banking, and stayed the course on risk management and simplification.”
Mr King said that Westpac had further strengthened its balance sheet, with a CET1 ratio of 12.3 per cent and funding and liquidity ratios “well above regulatory requirements”.
“Our credit quality remains sound with little change in the level of stressed assets, however, we boosted credit impairment provisions this half reflecting the forecast tougher economic outlook,” he said.
“Our balance sheet strength sees us well positioned to support customers to grow and navigate any future economic challenges.”
In the consumer segment, net profit grew 7 per cent to $1.8 billion. Net loans were reported to have increased by 3 per cent to $480 billion while deposits grew by 6 per cent to $294 billion.
Net profit in the business segment jumped 256 per cent to $851 million, with net loans up by 6 per cent to $86 billion.
Westpac Institutional Bank posted an 88 per cent rise in net profit to $574 million, driven by non-interest income which rose by 19 per cent to $704 million. Net loans in the segment were up by 14 per cent to $85 billion and deposits were up 8 per cent to $113 billion.
Westpac’s group net interest margin (NIM) lifted 5 basis points (bps) to 1.96 per cent while its core NIM, excluding notable items and treasury and markets, rose 20 bps to 1.90 per cent. Mr King noted that despite the rise, NIM “still remains lower than historic levels”.
Net interest income increased 10 per cent to $9.1 billion, reflecting the increase in NIM as well as a 7 per cent increase in average interest-earning assets.
Meanwhile, the bank’s operating expenses were 7 per cent lower at $5.0 billion, which was said to have been partly driven by businesses sold. Excluding notable items and the impact of businesses sold, operating expenses were down 1 per cent.
According to Mr King, the bank is now entering a “new strategic phase” to reposition its priorities and focus on the future.
“This half we’ve completed the exit of another two businesses, we’ve recently opened our 50th co-located branch, and we’re seeing the benefits of our investment in risk management as we continue our Customer Outcomes and Risk Excellence (CORE) program,” he said.
“The progress we have made sees us in a position to increase our growth aspirations over time in key markets such as business lending, while managing downside economic scenarios.”
Amid high inflation and ongoing regulatory demands, Mr King pointed out that Westpac’s cost base had fallen further with an expense to income rate of 45.9 per cent.
As interest rates are now seen as being closer to their forecast peak, the Westpac CEO said that the bank is focused on how long rates stay high and what this means for household budgets and discretionary spending, with more stress expected in the period ahead.
“Credit growth — both housing and business — will ease. Intense mortgage competition is expected to negatively impact industry and Westpac’s margins in the next half,” Mr King said.
“Westpac enters this environment from a position of strength. We’ve set the balance sheet for the tougher outlook. We continue to run the bank conservatively, with the flexibility to support growth and handle the more challenging conditions.”