Westpac has reported a reduction in its net profit after tax (NPAT) of 16 per cent to $3.34 billion with chief executive officer Peter King cautioning about a slowing economy and heightened competition in the banking industry.
In an ASX announcement on Monday, the big four bank said NPAT excluding notable items was down 8 per cent from the prior corresponding period.
However, highlighting the bank’s strong balance sheet, King confirmed a 15¢ special dividend fully franked and a $1 billion hike on its share buyback program.
“Westpac’s balance sheet is in good shape and with the momentum in our business, supports a special dividend of 5¢ per share fully franked and an increase in the buyback program of $1 billion to $2.5 billion.”
The interim dividend is 75¢ per share fully franked, up 7 per cent on the 2023 interim dividend, King added.
“Overall, I’m positive about the outlook and confident we will continue to deliver for customers.”
Looking at segment performance, the bank’s business and wealth segment experienced an NPAT increase of 7 per cent to $1.14 million. Net loans rose 3 per cent, with bank lending growing 5 per cent, driven by the commercial property and agribusiness sectors.
Meanwhile, its institutional bank segment saw NPAT fall 3 per cent to $689 million.
“Pre-provision profit grew 7 per cent, reflecting well managed margins and loan growth of 10 per cent. The increase in impair charges off a low base more than offset the contribution from pre-provision profit growth,” Westpac said.
The consumer segment, too, saw NPAT fall to $1.08 million, a 32 per cent decline as operating income fell 12 per cent, mainly due to price competition in mortgages.
With this, net interest margin (NIM) dropped 7 bps on the prior corresponding period, though the impact of competition on mortgage margins moderated this half and NIM, excluding notable items, was unchanged from the second half of 2023.
“While we’ve seen an uptick in stress in our loan books, this is to be expected given the large increase in interest rates, high inflation, and taxation,” King remarked.
Saxo Asia-Pacific senior tales trader, Junvum Kim, observed this increasing competition in the mortgage market “continues to be a thorn in Westpac’s side”.
“Westpac’s initiation of a special dividend and the expansion of the share buyback program are being warmly received, seen as moves likely to bolster investor confidence,” he said.
“Yet, the competitive landscape in the mortgage market continues to be a thorn in Westpac’s side for the core net interest margin, which is struggling to rise above the 2 per cent mark.”
In its latest results, Westpac observed the Australian economy is proving resilient and is on track for a soft landing, although a “higher for longer” scenario seemed likely as inflation continues to remain sticky, both globally and in Australia, according to CEO King.
Additionally, ongoing economic risk from geopolitical conflict and uncertainty playing out in the Middle East and Europe remained a concern, he said.
“Despite the uncertain economic outlook, I remain of the view that Australia is one of the better places to be.
“Westpac is in a good position. We’re firmly focused on our customers and continuing our contribution to the nation’s economic wellbeing.”
Last week, big four bank NAB announced cash earnings came in 12.8 per cent lower at $3.5 billion amid competitive pressures. It reported a revenue decrease of 3.7 per cent to $10.1 billion in the six-month period, alongside a fully franked $0.84 per share interim dividend.
It announced it has increased its on-market buyback of ordinary shares by $1.5 billion, which is expected to be undertaken over the next 12 months.
