Westpac has reported an unaudited net profit of $1.8 billion for the third quarter of its financial year as part of an update to the ASX released on Monday morning.
While acknowledging the impacts of inflationary pressures, mortgage competition and a “modest” increase in stressed assets, the bank declared that it remained in a “strong financial position” with capital, funding and liquidity sitting “well above regulatory minimums”.
This included a CET1 capital ratio of 11.9 per cent, which was down 42 basis points (bps) compared to the previous quarter following the payment of the dividend for the first half of the financial year, but was still above Westpac’s target operating range of 11–11.5 per cent.
“The quarter was characterised by resilient operating revenue, assisted by ongoing disciplined margin management. Inflationary pressures impacted expenses which reflected both higher supplier costs and salary and wages,” the bank said.
Westpac reported a core net interest margin (NIM) of 1.86 per cent, which was down 4 bps on the first half in reflection of ongoing competition in the mortgage market but partially offset by higher earnings on capital and hedged deposits.
Group NIM was up by 10 bps versus the first half to 2.06 per cent, including treasury and markets income of 10 bps (up 2 bps) and gains related to hedging of 10 bps.
The bank noted that its quarterly average liquidity coverage ratio was 138 per cent and its net stable funding ratio was 118 per cent, with both “well above” the regulatory minimums.
Meanwhile, the proportion of stressed assets to total committed exposures was reported to have increased by 6 bps compared to March 2023 to 1.16 per cent, reflected in credit impairment charges to average loans of 12 bps for the nine months to 30 June.
“Credit quality was resilient in 3Q23 and the group remains well provisioned,” Westpac said.
Expenses were approximately 5 per cent higher than in the first half on the back of inflationary pressures, including higher supplier costs, wages and salaries, as well as the bank’s investment in technology and customer simplification.
“The group remains committed to cost discipline with recent cost reset actions driving a full time equivalent employee reduction of approximately 2 per cent for the second half 2023 to date,” Westpac said.
Meanwhile, notable items flagged for the second half are expected to include one-off expenses associated with the bank’s cost reset program and costs related to a one-off levy for the Compensation Scheme of Last Resort (CSLR).
Westpac has indicated that it will release its full-year results on 6 November.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.