Westpac blames virus and money-laundering fine on ‘disappointing’ financial results

Westpac has blamed the economic downturn from COVID-19 and a money-laundering scandal for its “disappointing” financial results.

Westpac’s yearly profits have been slashed by more than half as financial inflictions from the coronavirus pandemic and a money-laundering scandal hit the major bank’s bottom line.

The country’s second largest banking group posted a net profit of $2.29 billion for its 2020 financial reporting period, a 66 per cent plunge on the previous year. Its cash earnings for the period dropped 62 per cent to $2.61 billion.

Westpac said higher costs associated with the pandemic and the financial crimes watchdog slapping it with a $1.3 billion fine for its money-laundering blunder in 2019 had dented full-year performance.

The country’s second largest banking group posted a net profit of $2.29 billion for its 2020 financial reporting period, a 66 per cent plunge on the previous year. Picture: NCA NewsWire / Jono Searle

However, the financial incumbent has decided to resume dividends, paying a final-year dividend to shareholders of 31 cents per share.

Westpac in the first half of its financial year suspended payments to investors in order to preserve capital during the height of the COVID-19 economic downturn.

Westpac chief executive Peter King said the bank’s results were “disappointing”, noting high costs during an economic decline has weighed on its performance.

“2020 has been a particularly challenging year and our financial result is disappointing,” Mr King said.

Westpac CEO Peter King said the bank’s results were disappointing. Picture: Nikki Short

“Our earnings have been significantly impacted by higher impairment charges, increased notable items and the sharp decline in economic activity. At the same time, we have incurred higher expenses due to increased resourcing to handle unprecedented COVID-19 demands and fixing our compliance issues.”

The bank said capital buffers remained robust to cope with the pressures influenced by the pandemic, with decisions to resume dividend payments in line with guidelines set by the prudential regulator.

Westpac is anticipating its financial performance will improve throughout 2021 and 2022.

Mr King noted impairment costs in the second half of the financial year had declined due to less one-off payments, and expected levels of bad debts were better than expected.

Westpac still has 41,000 home loan repayments on deferral due to the health crisis, which equates to about $16.6 billion, and 4300 small business loans remain suspended at a value of $1 billion.

Westpac still has 41,000 home loan repayments on deferral due to the health crisis, which equates to about $16.6 billion. Picture: NCA NewsWire / Jono Searle

“We remain in an uncertain economic environment; however, the recent budget has provided significant stimulus to businesses and households,” Mr King said.

“Our economists expect at least half the personal tax cuts will be spent and businesses will respond to the generous depreciation allowances.”

Mr King, who became chief executive following the abrupt end of Brian Hartzer’s reign after the AUSTRAC scandal, said the bank was making progress in overhauling its risk compliance regarding anti-money laundering laws.

In November last year, AUSTRAC revealed Westpac failed to report millions of suspicious banking transactions, resulting in 23 million breaches of anti-money laundering and counter-terrorism financing laws.

“We have taken accountability for our mistakes and commenced a process of fundamental change, which has included refreshing the board and management and elevating oversight of financial crime, compliance and conduct,” Mr King said.

Moody’s Investor Service vice president Daniel Yu said impairment charges were four times the size of the prior year, but the banking group remained well capitalised.

“Despite these pressures, Westpac’s Common Equity Tier 1 capital ratio improved to a healthy 11.13 per cent and the bank’s dividend payout ratio of 49 per cent of fiscal 2020 statutory profit is the maximum allowable under APRA’s guidance,” Mr Yu said.

Investment analysts at brokerage Citi said the fall in earnings was 10 per cent above expectations.