Westpac's Fiscal Year Profit Up 26%, Commences A$1.5 Billion Buyback — Update

By Alice Uribe

SYDNEY--Westpac said its annual net profit rose by 26% underpinned by growth in key divisions, with the company launching a 1.5 billion Australian dollar (US$980 million) share buyback and increasing its dividend.

Westpac, one of Australia's major banks, said its net profit totaled A$7.2 billion in the 12 months through September. That was in line with analysts' expectation of a full-year net profit of A$7.21 billion, according to FactSet's consensus estimates.

"This result delivers a better return on equity, higher earnings per share and increased net profit," Chief Executive Peter King said. "This is built on the back of growth in key markets including deposits, mortgages and institutional banking."

Last month, Westpac signaled the company's full-year net profit would take a A$173 million hit, due a range of notable items including an increase in provisions for customer refunds.

Westpac said its capital position was above regulatory requirements, with resilient credit quality allowing the lender to increase its dividend and buy back shares.

Directors declared a final dividend of A$0.72 per share, up from A$0.64 per share a year ago. The group's closely watched common equity tier 1 capital ratio was 12.4% at the end of September, up 109 basis points on year.

While Westpac's operating expenses fell 1% to A$10.69 billion, King said the lender had "more work to do as we seek to lower our cost to income ratio relative to peers."

The lender's full-year core net interest margin--a key profitability indicator which excludes Notable Items, Treasury and Markets--rose by 12 basis points to 1.87%. Westpac noted that higher return on capital balances and increased deposit spreads was partly offset by tighter loan spreads due to intense competition.

Westpac, like other lenders, has benefited from a rising interest rate environment. But some analysts believe that Australian lenders may see limited earnings growth, with the rates tailwind for NIM and earnings likely to slow into FY 2024 and beyond.

At a divisional level, Westpac's consumer unit's net profit fell by 7% compared to the same period last year, to reach A$3.05 billion.

Net loans rose by 4% and deposits grew by 10%, while Westpac said impairments were little changed. Still, the result was impacted in part by a 6% rise in expenses, according to the lender.

In Westpac's business division, full-year net profit rose by 77% to A$1.63 billion, with net loans rising 5%. For the institutional bank, net profit rose by 54% to A$1.06 billion aided by a 9% rise in loans and strong growth in financial markets income.

On hardship levels, Westpac said they remained at around half the numbers the lender saw during the pandemic, adding it had not yet seen significant increases in customers falling behind on repayments.

There remained some uncertainties in the economic outlook despite easing inflation, King said.

"In Australia, employment and productivity are key measures to watch. The jobs market has proved robust but will be tested through 2024. Consumer sentiment remains weak but there are glimmers of hope with some cost pressures starting to ease for businesses, which in time should flow through to prices paid by consumers," he said.

"We're broadly positive about the economic outlook over the next year."

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

November 05, 2023 16:44 ET (21:44 GMT)

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