No 2 Australian mortgage lender Westpac said on Monday (Nov 4) that annual profit dipped as costs associated with a technology overhaul outweighed an improved loan margin, but upped its final dividend and extended a share buyback.
The result, which was better than feared, shows a company navigating what it hopes is the final stretch before the Reserve Bank of Australia begins cutting interest rates, which will make it easier for borrowers to service debt and ease upward pressure on costs.
Westpac forecasts the central bank will cut rates in February, which would be the country’s first in five years.
Profit for Australia’s oldest bank declined 3 per cent for the year ended Sep 30 to A$6.99 billion (S$6.1 billion), bettering an LSEG estimate of A$6.50 billion.
Its net interest margin (NIM) – a closely-watched metric of takings from loan repayments minus outgoings for interest paid to deposit holders – widened to 1.97 per cent from 1.89 per cent from the first half to the second half, even amid fierce competition to sell mortgages.
But spending on a multi-year software overhaul and other inflationary pressures brought a 7 per cent blowout in operating costs, dragging the bottom line result lower. Westpac upped its final dividend and said it would buy back another A$1 billion of stock.
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“The underlying NIM trends we think look encouraging, although a period of higher-than-expected cost growth might dampen some of this benefit,” UBS analysts said in a note.
Hardship packages, which banks offer to borrowers in difficult circumstances to ease their repayment obligations, peaked in June and were starting to come down, Westpac CEO Peter King said.
“That says to me people have gotten used to these higher interest rates,” he said, delivering his last results before retiring.
Westpac declared a higher final dividend of 76 Australian cents per share, compared to 72 Australian cents a year earlier.
Rival lenders ANZ and National Australia Bank are expected to report full-year results on Nov 7 and Nov 8 respectively, while No1 lender Commonwealth Bank gives a first-quarter trading update on Nov 13. REUTERS
