Westpac flags $140m profit hit

Westpac is to kick off a fresh bank earnings season, with analysts watching for commentary around margin pressures as rates fall.

Westpac is due to hand down its first-half earnings results on May 5. Picture: Getty Images

Westpac has flagged a $140m hit to its first-half net profit, as the lending giant prepares to kick off bank earnings season.

Westpac on Wednesday said its reported net profit after tax in the first half would be reduced by $140m due to hedging impacts, which reverse over time.

The bank will hand down its interim results on Monday, with analysts watching closely for any commentary around margin pressure as rates move lower. NAB and ANZ will also hand down their half-year numbers next week, followed by CBA delivering a quarterly update on May 14.

Inflation data released on Wednesday has cemented the market’s view that the RBA will cut rates again on May 20, following its 25-basis-point drop to the official cash rate in February. Analysts are tipping further rate cuts during the rest of the year. The banks, meanwhile, will be under pressure to fully pass on any rate cuts to borrowers, with likely margin impacts.

Macquarie analysts see Westpac as most exposed to lower rates. “The outlook for rates is a key uncertainty and risk for bank earnings, with the market now pricing in around 140bps of RBA cuts over 2025,” Macquarie analysts said this week. “Given the uncertainty in the outlook, we have maintained our embedded forecast for 100bps of rate cuts (an additional 75bps), but see downside risk to margins if market pricing is realised.

“Indeed, given the non-linear impact of increasing rate cuts on bank margins, a 50bps increase in rate cuts will reflect a greater than 50 per cent increase in the margin drag.”

Bank share prices are vulnerable to any revenue, credit quality or capital miss this earnings season, according to Morgan Stanley. “It’s hard to see what would drive material upgrades,” Morgan Stanley’s Richard E. Wiles told clients in a note.

In its preview on Westpac’s half-year update, Mr Wiles said investors should monitor the “core” margin drivers, the core “exit” margin and second-half considerations. He expects the dividend to be held steady at 76c.

Originally published as Westpac flags $140m profit hit