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Category: Banking / Company News

Westpac profit falls 7pc to $7.4b amid rising bad debts

Monday, 7 Nov 2016 05:35:38 | Michael Janda

Westpac is maintaining its dividend at 94 cents a share, the same as its interim payment. (ABC News: Nic MacBean, file photo)

Westpac's profit has fallen 7 per cent, with then bank recording full-year statutory earnings of $7.45 billion.

Key points:

  • Westpac's preferred cash profit measure flat at $7.82b
  • Bad debt charges rise 49pc due mainly to a few large corporate loan impairments
  • Dividend remains steady at 94c per share

The bank's preferred measure of cash earnings, which excludes some one-off items, was in line with the previous year at $7.82 billion.

However, with extra shares on issue to meet increased regulatory requirements, the bank's cash earnings per share fell 5 per cent to $2.355 and its cash return on equity also dropped 1.85 percentage points to 14 per cent.

A key source of the fall in earnings was a 49 per cent increase in bad loans compared to the prior corresponding period, although the bank said the second half impairment charge of $457 million was 31 per cent lower than the first half of 2016.

Westpac is attributing the rise in bad debts to a "small number of institutional exposures that were downgraded in the first half", but also acknowledged a 21-basis-point jump in "stressed assets" to 1.2 per cent of the loan book as at the end of September.

The bank said low dairy prices have affected some of its New Zealand customers, while the ongoing impact of the mining slowdown has hurt borrowers in some regions of Australia.

Australian mortgage arrears of 90 days or more are up 21 basis points compared to 2015, although Westpac said 13 basis points of that rise is due to changes in how customers granted hardship assistance are reported.

Westpac earnings driven by consumer banking

While bad debts are ticking higher in the retail sector, it was not by anywhere near enough to erod profit growth.

Westpac's consumer banking division increased cash earnings by 14 per cent compared to last financial year, with business banking earnings up just 1 per cent and all other divisions reporting profit falls, notably the institutional bank (which deals with large businesses and other banks) with an 18 per cent drop in profit.

Despite the overall drop in earnings, the bank is maintaining its payments to shareholders at 94 cents per share.

The bank's chief executive Brian Hartzer is also upbeat about Australia's economic outlook, except for weaker growth in Western Australia and Queensland due to the resources slowdown.

"Financial system credit growth is likely to be in line with the current year at around 5.5 per cent," he noted in the profit report.

"Housing credit growth is likely to ease a little as price growth slows.

"Business credit growth is likely to improve moderately as it rebounds off a low base."

AustraliaPlus


 

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