This was published 6 months ago
Westpac chief praises resilient economy and eyes 2024 rate cut
By Millie Muroi
The bosses of Westpac and Bendigo and Adelaide Bank say late payments on home loans have ticked up, but that an easing in interest rates, which looks likely to happen this year, would support economic growth.
Westpac chief executive Peter King said he expected the economy to remain resilient as the bank reported a $1.5 billion first-quarter profit.
Westpac chief executive Peter King says the economy is doing better on the back of stronger business balance sheets.Credit: Edwina Pickles
In an update to the ASX on Monday, King said the economic slowdown, combined with easing inflationary pressures, should raise the possibility of interest rate cuts within the year, and that businesses in particular were performing robustly.
“From a credit quality perspective, we saw a reduction in business stress,” he said. “We expect the economy to remain resilient, supported by low unemployment and healthy corporate sector balance sheets.”
However, he said 90-day mortgage delinquencies had increased, reflecting the tougher economic environment including cost of living pressures.
Westpac’s unaudited net profit for the first quarter was $1.5 billion, 6 per cent lower than its second-half average, which King said solely reflected “hedge accounting”, a method of accounting which attempts to reduce the volatility created by repeated adjustments to the value of a security. King said this would reverse over time.
Excluding notable items, the bank’s net profit was $1.8 billion, in line with its second-half average.
Bendigo and Adelaide Bank chief executive Marnie Baker said interest rates had probably peaked.
“By the end of the calendar year, we may see some rate decreases,” she said, noting cost of living pressures were “very real”. Bendigo’s 90-day-plus arrears increased by 6 basis points, but remained at historically low levels.
Bendigo’s share price fell 1.8 per cent on Monday. The bank declared a fully franked interim dividend of 30 cents a share, 3.4 per cent higher than the prior corresponding half.
As economic conditions improve, Baker said there could be a pick-up in credit growth, leading to softer competition among banks for home loans.
Over the past few years, banks’ net interest margins, a measure of profitability comparing a bank’s funding costs with what they charge for loans, have declined amid intense competition for home loans.
Baker said she saw heightened competition across the mortgage portfolio and that Bendigo slowed down its growth in home loans relative to the industry, and focused on digital channels, opting to sit out on irrational pricing approaches pursued by some banks.
Bendigo’s net interest margin fell 15 basis points to 1.83 per cent in its first half, with its cash earnings after tax falling 5 per cent to $268.2 million.
Westpac’s net interest margin, excluding notable items, fell 1 basis point to 1.93 per cent, while its core net interest margin dropped 4 basis points to 1.8 per cent. The bank said this reflected “prudent management” in the context of ongoing mortgage competition.
Westpac grew its customer deposits by $7.9 billion, 10 per cent above the industry average, and housing loans by $5.6 billion, in line with the industry average.
Westpac’s expenses, excluding notable items, increased 2 per cent, reflecting higher amortisation expense and ongoing inflationary pressures, which outweighed benefits from a 2 per cent reduction in the full-time hours worked by its employees and ongoing “cost reset” actions.
Westpac’s share price rose 2.9 per cent after its results.
The bank’s provisions for expected credit losses increased from $4.8 billion in December 2022 to nearly $5.1 billion in December 2023, driven largely by increases in 90-day-plus mortgage delinquencies.
E&P Capital analyst Azib Khan said Westpac’s revenue and core net interest margin were stronger than expected, and that it was pleasing to see costs, which have been a problem for Westpac in recent times, come in lower than expected. He said there was “nothing too concerning” on asset quality at this stage.
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