Westpac has pledged to push on with cost cuts after its program to streamline operations helped it partly offset a contraction in margins amid intense competition in the home loans market and higher provisions for bad debts.
The lender on Monday posted a 12 per cent drop in first-half cash earnings to $3.1 billion, while statutory net profit for the six months to March 31 also dipped five per cent from a year ago to $3.28 billion.
Revenue for the half-year was down four per cent at $10.23 billion.
The headline numbers, while lower, were better than market estimates and helped the stock rebound. By 1420 AEST, Westpac shares were up 2.9 per cent to $24.52, bucking the trend among financial stocks in a weak Australian market.
Net interest margin, which reflects the difference between what the bank charged versus the cost of a loan, slid 22 basis points to 1.85 per cent.
It also booked an impairment charge of $139 million, setting aside more funds to cover for potential bad debts related to the recent floods in NSW and Queensland and broader global uncertainty.
“The first half of 2022 has been challenging for many customers. Floods, the lingering effects of the pandemic and the impact of the war in Ukraine have set many customers back and created uncertainty,” chief executive Peter King told investors on Monday.
Westpac said its cost reset program helped offset the decline in revenue and increase in impairments, with costs down 10 per cent from the same period a year ago as it cut more than 4,000 jobs in the first half.
It forecast second-half costs to be flat to 2 per cent lower, and also reaffirmed its a previous plan to cut costs to $8 billion a year by fiscal 2024.
The lender’s commitment to its cost reduction program is in contrast to rivals ANZ and NAB, which last week walked away from their target of reducing absolute costs, saying emerging inflationary pressures and the need to make investments to support growth made the plan untenable.
Earnings in its key Australia consumer division, which includes the mortgages business, slid 15 per cent from a year earlier. Margins were down 25 basis points amid stiff competition in the home loan market and a low-rate environment.
However, earnings improved at its New Zealand and institutional banking businesses.
It completed the sale of two more businesses and says plans to exit its remaining non-core businesses are on track.
“The next big step is exiting super and platforms and we are well progressed,” it said.
Westpac is forecasting the economy to expand by 4.5 per cent in 2022, but slow to 2.5 per cent in 2023. Credit growth is forecast to be a strong 5.7 per cent in 2022.
Demand for housing has already shown some signs of easing, and rising interest rates are expected to contribute to a moderation in house prices next year.
“Consumer spending may be tempered by higher prices and higher interest rates,” Mr King said.
“However, the positives of strong household and business balance sheets, combined with the continued reopening of international borders and local economies, will likely increase economic activity.”
Westpac will pay a fully franked interim dividend of 61 cents a share, up from the 60 cents a year ago.
WESTPAC H1 PROFIT DROPS
* Cash profit down 12pct to $3.1b
* Statutory profit down 5pct to $3.28b
* Revenue down 4.0pct to $10.23b
* Fully-franked final dividend 61cps vs 60cps
Prashant Mehra
(Australian Associated Press)