Westpac posts $1.8bn net profit for the third quarter amid flat revenue

Westpac chief Peter King offered an upbeat note as margins improved, and lending and deposits also grew in the quarter.

Westpac has posted a $1.8bn net profit for the third quarter. Picture: Lisa Maree Williams/Getty Images

Westpac has posted a $1.8bn net profit for the third quarter amid flat revenue and a slight lift in expenses, with margins ticking up over the three months.

The bank’s share price jumped 2.5 per cent to $30.42 in early trade, a multi-year high, as investors took stock of the profit numbers and margin uplift. The latest boost means Westpac’s share price is up 33 per cent since the start of the calendar year.

Impairment charges to average loans of 4 basis points were down from 9 basis points, reflecting an improvement in the economic outlook, the bank said.

The $1.8bn unaudited net profit was a 6 per cent lift on the first-half quarterly average and flat on the same period last year, with expenses up 2 per cent due to higher investment spend and inflationary pressures in technology.

Excluding the impact of notable items, related to hedge accounting which the bank said would reverse over time, unaudited net profit increased 2 per cent against the first half quarterly average.

Net interest margin of 1.92 per cent was up 3 basis points on the first half, with core NIM of 1.82 per cent up 2 basis points, reflecting the benefit of higher earnings on capital and hedged deposits.

Customer deposits grew by $15.4bn as loan growth hit $14.7bn in the quarter, including household deposit growth of 3 per cent and housing loan growth of 8 per cent.

Chief executive Peter King said it was a solid quarter for the lender and pointed to the growth in the business even as he cautioned on the challenges facing both households and businesses.

“Our consistent focus on customer service has contributed to another solid quarter. We grew the business and maintained a strong financial position,” Mr King said.

“We continue to prioritise financial strength with capital, funding and liquidity well above regulatory minimums. The cost of living and high interest rates remain a challenge for some customers while many businesses are facing cost pressures and experiencing lower demand.”

Net interest income increased 2 per cent, which the bank said reflected both higher net interest margin and loan growth, while non-interest income fell 4 per cent on lower financial markets revenue.

Citi analyst Brendan Sproules said it was a good result, with volume momentum across loans and deposits.

“All up, a solid quarterly print. We think this will be well received by investors given the positive differentiation versus peer results last week (NAB released its quarterly numbers in recent days, while Commonwealth Bank handed down its full-year result), coupled with core earnings expectations being too low,” Mr Sproules wrote in a note to clients.

“We think the market will focus on the positive momentum in core NIM and volumes, which should lead to a better revenue outcome versus peers. To the extent that management continue to manage costs well, albeit in the context of their technology reinvestment, we think the market will be able to focus on the revenue story at Westpac.

Westpac’s reported costs of $2.7bn were below expectations, Mr Sproules added.

“One of the market’s key concerns with Westpac is the size of and execution of (its) technology investment. Management noted that investment spend picked up seasonally in this result, along with ongoing inflationary pressures. However, this suggests that either market expectations were too high in the near term or management have extracted better underlying productivity,” he said.

UBS analyst John Storey said Westpac was well placed to return capital to shareholders.

“Overall, looking at consensus numbers this result suggests implied fourth quarter net profit of $1.6bn, which should see upgrades driven by higher NIM and lower bad debts,” he said... “Westpac remains well placed to return further capital to shareholders.”

Westpac has already completed 60 per cent of its previously announced $2.5bn on-market share buyback.

Westpac shares lifted 2.5 per cent to $30.34 on Monday.