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Westpac records in-line $4bn half-year cash profit

Nicholas Grove  |  08 May 2017Text size  Decrease  Increase  |  

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Australia's oldest bank delivers an in-line half-year cash profit of $4 billion, following a standout performance from its institutional business.

 

Westpac Group (ASX: WBC) on Monday announced a 3 per cent rise in cash profit before significant items to $4 billion for the half year ended 31 March 2017, in line with both consensus and Morningstar's forecasts.

Statutory net profit for the half rose 6 per cent year over year to $3,907 million, while cash earnings per share rose 1 per cent to 119.8 cents a share, the bank said in a statement to the ASX.

Cash return on equity stood at 14 per cent, at the upper end of Westpac's 13-14 per cent target range.

The bank announced a 94-cent half-year dividend, fully franked and unchanged on the same half in the previous year.

The dividend will be paid on 4 July 2017 to shareholders on the register as of 19 May 2017.

Westpac said its Common equity Tier 1 capital buffer stood at 10.0 per cent, after customer deposit growth outstripped loan growth.

All divisions performed solidly, Westpac said, and with the exception of BT Financial Group, increased their group contributions compared to the previous corresponding half.

"This is a solid result given the current complex operating environment," Westpac CEO Brian Hartzer said.

"Our portfolio of businesses has performed well. The Institutional Bank is the standout, benefiting from improved credit quality, increased customer transactions, and a strong result from our markets business.

"Our Consumer and Business Banks continued to grow in targeted areas but margins were affected by higher funding costs."

Net interest margin--or the difference between interest income generated by the bank and the amount of interest paid to lenders, relative to the amount of interest-earning assets--fell 4 basis points to 2.05 per cent.

Morningstar head of Australian banking research, David Ellis, said Westpac's "clean" result was underpinned by ongoing cost discipline, strong loan quality, and robust capital levels.

And while he may have been "moderately disappointed" with the decline in net interest margin, he said Westpac remained Morningstar's preferred major Australian bank exposure.

"We like its track record of discipline around cost control, risk management, net interest margins, and shareholder returns," Ellis said.

"Westpac Bank continues to focus on productivity improvement and sustainable growth, without the distractions of exiting underperforming legacy assets.

"Going forward, we expect underlying growth in risk-weighted assets to be modest, and combined with strong profitability and benign credit quality, we expect sustainable but modest growth in the fully franked dividend to be maintained."

The bank did not provide any specific forward earnings guidance, and while Hartzer expects growth to remain "mixed" across the country, he said the outlook for Australia remains positive overall.

"Westpac's consistent focus on Australia and New Zealand over a long period means our high-quality portfolio is strongly positioned," he said.

"We remain positive about the Australian housing market, although we expect price growth to moderate through 2017. 90-plus day delinquencies remain low by historical measures and our home loan book continues to perform well with more than 70 per cent of customers ahead on their repayments.

"The financial services industry continues to experience significant regulatory change. Given the strength of our business and our balance sheet, we are well placed to respond to any additional regulatory requirements."

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Nicholas Grove is a Morningstar journalist.

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