Westpac Shares Rise as Bank Reports $1.5 Billion Profit

Australian big four bank Westpac has reported a $1.5 billion (US$980 million) net profit in the first quarter of 2024, down 6 percent on the average profit in the second half of 2023.

The bank reported (pdf) a core net interest margin of 1.8 percent, down four basis points as a result of “prudent management” amid ongoing mortgage competition.

Westpac said the fall in unaudited net profit was solely due to notable items related to hedge accounting, which CEO Peter King explained will “reverse over time.”

The bank’s shares are up 2.52 percent at the time of writing, trading at $25.19 each, following the release of these results to the Australian Stock Exchange (ASX).

For comparison, Commonwealth Bank of Australia (CBA) shares are currently up 0.65 percent, while National Australia Bank (NAB) shares are down 0.24 percent and ANZ shares are climbing 0.12 percent on Feb. 19.

Mr. King described the results as a “solid quarter” in which the bank has “grown the franchise” and maintained a strong financial position.

“This has been a solid quarter in which we’ve grown the franchise and maintained a strong financial position. Our unaudited net profit was $1.5 billion. The impact of notable Items, related solely to hedge accounting which will reverse over time, drove the 6 percent decline,” Mr. King said.

“Excluding notable items net profit was $1.8 billion, in line with the second half 2023 average. Pre-provision profit grew 1 percent with both revenue and expenses rising 2 percent.”

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

Mortgage Business Worth $400 Billion

In an investor presentation (pdf), Westpac noted it had a total Australian mortgage portfolio worth $490.9 billion at the end of December 2023. Of these, 67.5 percent are owner-occupied and 31.3 percent are investment property loans. The average loan size is $306,000.

The bank reported 32 percent of customer accounts are ahead on repayments, while 23 percent are on time. Meanwhile, 16 percent are less than one month behind, 15 percent are less than six months behind and 13 percent are behind by greater than six months and less than two years.

Mr. King said the bank remains focussed on helping customers that are facing “high cost of living” pressures and “making difficult choices” to manage household budgets.

“From a credit quality perspective, we saw a reduction in business stress while a rise in 90+ day mortgage delinquencies reflects the tougher economic environment. We remain focused on helping those customers facing high cost-of-living pressures and making difficult choices to manage household budgets,” he said.

CEO Predicts Monetary Policy Could Become Less Restrictive

Mr. King also shared his thoughts on his outlook for the economy, highlighting his hope that the Reserve Bank of Australia’s monetary policy improves in the year ahead.

“We expect 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.”

Westpac reported an unaudited net profit excluding notable items of $1.8 billion, which was consistent with the average second half of 2023 result.

The bank noted solid customer deposit grown of $7.9 billion and a $5.6 billion growth in loans. The bank’s net operating income fell 5 percent to $5.3 billion.

The bank reported a Common Equity Tier 1 (CET1) capital ration of 12.3 percent, down nine basis points compared to the previous quarter.

Analysts Respond Positively to Results

Citi analyst Brendan Sproules described the result as “reassuring” for investors in comments cited by The Australian.

“Importantly, Westpac has regained balance sheet momentum with mortgage and household deposit growing in line with system,” Mr. Sproules said.

“After a weak 2H23 result, a better than expected 1Q24 profit, ex notables, is likely to be reassuring for investors. This markets-driven result seems unlikely to change expectations, but no negative surprises is likely to be reassuring,” he said.

Meanwhile, E&P capital analyst Azib Khan was also positive on the results, in comments cited by the Australian Financial Review, noting “nothing too concerning on asset quality at this stage, and the capital position remains strong.”

Commonwealth Bank Also Reports Profit Fall

Commonwealth Bank of Australia reported (pdf) a statutory net profit after tax of $4.8 billion in the first half of the 2024 financial year, an 8 percent fall.

The bank’s net cash profit after tax (NPAT) came out at $5 billion, down 3 percent compared to the prior corresponding half.

Operating income was flat at $13.6 billion, while operating expenses increased 4 percent to $6 billion due to inflation and technology expenses.

CEO Matt Comyn said 2023 was challenging for many of the bank’s customers who are “finding it harder” to absorb cost of living pressures.

“The economy has been fairly resilient, supported by a strong labour market, savings and repayment buffers, population growth, and relatively high commodity prices,” he said.

“However, downside risks are building as slowing demand and persistent inflation impact Australian businesses. Ongoing geopolitical tensions also create uncertainty.”

National Australia Bank is due to report on Feb. 21, while ANZ is scheduled to report earnings in May. 7.