Westpac has revised a cost-cutting target by $600 million because of high inflation and the tight labour market, as the bank’s full-year cash earnings eased to $5.3 billion.
The banking giant on Monday reported cash earnings that were weighed down by $1.3 billion in charges that it had previously announced, including a $1.1 billion loss on the sale of a life insurance business. Cash earnings of $5.3 billion were 1 per cent lower than last year.
Westpac’s full-year profits have dipped by 1 per cent. Credit:Bloomberg
But excluding these “notable items,” the bank said its core earnings were up 12 per cent, and its net interest income had risen 7 per cent. Market analysts had expected cash earnings of about $5.4 billion.
Chief executive Peter King has been seeking to rein in costs at the Sydney-based lender after a period of poor performance, and the CEO said during the year it had cut its expenses by 7 per cent, including reducing the number of full-time employees by 2,667.
At the same time, the bank changed a previous commitment to get its cost base to $8 billion by 2024, because of higher-than-expected inflation. It is now targeting a cost base of $8.6 billion.
King said it was a “solid” financial result, citing growth in its home loan and business lending book, as well as moves to cut expenses, which have included moves to remove products and merge branches in nearby locations. The bank’s mortgage portfolio grew by 2 per cent in the September half to $467 billion.
“Westpac returned to growth in our key segments of Australian mortgages and business lending. In the second half, our banking divisions delivered strong growth in core earnings on the back of good cost and margin management,” King said.
The bank’s net interest margin, which compares funding costs with what the bank charges for loans, increased from 1.8 per cent to 1.9 per cent during the September half. The proportion of stressed loans fell from 1.1 per cent to 1.07 per cent of the bank’s portfolio in the September half.
It has declared a final dividend of 64¢ a share, up from 61¢ in the first half of the year.
Westpac’s flagship consumer bank posted lower profits on a full-year basis, but a 10 per cent improvement in the September half compared with the March half. Its business banking unit also said earnings were sharply higher in the second half, up by 184 per cent.
Speaking on the economic outlook, King said 68 per cent of customers were ahead of their mortgage repayments and the bank had not yet seen any increase in hardship or stressed loans. Even so, he signalled it was a matter of time before rising interest rates had an impact, and he said it was important that policymakers contain “high inflation psychology” in the economy.
“Many customers built up savings during the past two years and 68 per cent remain ahead on their mortgage repayments. However, it is inevitable that the impact of higher rates will be felt, including when borrowers’ low fixed-rate loans are rolled over,” King said.
“As we approach the new year, there’s increased economic uncertainty and volatility in financial markets. Although supply chain constraints are easing, skilled labour remains hard to find. The biggest challenge for the authorities is to contain the high inflation psychology that is now taking hold in the economy.”
More to come.
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