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Westpac’s profit drops, expects rate cuts within a year

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Westpac has predicted that monetary policy easing will occur in the next year.

Westpac posted an unaudited net profit of $1.5 billion for the three months ended 31 December, a drop of 6 per cent on a temporary hedging hit.

The bank explained in a filing with the ASX that, although these hedges will eventually change, their adjustment affected the first-quarter results. Excluding notable items, net profit was $1.8 billion, in line with the second half 2023 average.

Commenting on the results, Westpac’s chief executive officer, Peter King, said: “This has been a solid quarter in which we’ve grown the franchise and maintained a strong financial position.”

Mr King noted that the bank expects the economy to remain resilient”, supported by low unemployment and healthy corporate sector balance sheets.

The economic slowdown, combined with abating inflationary pressures, should provide scope for monetary policy to become less restrictive within the next year.

We continue to prioritise financial strength with capital, funding and liquidity well above regulatory minimums.”

During the three months, the lender’s core net interest margin stood at 1.80 per cent, experiencing a 4 basis points decrease from the second half of 2023.

Regarding credit quality, Mr King noted a decrease in business stress.

From a credit quality perspective, we saw a reduction in business stress while a rise in 90-plus day mortgage delinquencies reflects the tougher economic environment,” Mr King said.

As of the end of December, the bank’s common equity tier 1 ratio, a key indicator of available capital, was 12.3 per cent, slightly lower than the 12.4 per cent reported at the end of September.

Last month, Westpac’s economist, Luci Ellis, said the bank does not expect any further rate increases by the Reserve Bank this cycle.

“Rate cuts are still some way off, though,” Ms Ellis said.

“We continue to expect the RBA to reach this level of comfort around September.”