Westpac chief executive Peter King says the return of $1.5 billion to shareholders via a dividend surprise and a supersized buyback is a sign of confidence in the Australian economy and the outlook for bad debts.

“While we’ve seen an uptick in stress in our loan books, this is to be expected, given the large increase in interest rates, high inflation and taxation,” Mr King said, helping smooth over a 16 per cent decline in first-half net profit to $3.3 billion. “We remain appropriately provisioned and with a strong balance sheet.”