Westpac has reported a flat full-year profit of $8.07 billion after customer compensation and legal costs contributed to a weak second half at its consumer and wealth divisions.
Cash earnings – Westpac’s preferred measure of profitability – for the 12 months to September 30 barely moved from the $8.06 billion reported a year ago.
But it dropped 10 per cent between the first and second halves, pointing to deteriorating conditions and increasing challenges as Australia’s second largest lender gets to grips with issues raised at the financial services royal commission.
Second-half income was two per cent lower than in the first, and impairments 19 per cent higher, while the closely watched net interest margin rose over the year but contracted by 0.12 percentage points in the second half.
The total $281 million for customer remediation and associated costs was low compared to the $421 million and $360 million at rivals ANZ and NAB, but chief executive Brian Hartzer seemed to confirm analysts’ belief that costs from the royal commission may continue to bite.
“We’re committed to running our business in a way that meets standards from customers and the community and we’ll continue to look to improve things,” Mr Hartzer said.
“I’d like to say we’re largely through it but it is possible there may be other issues.”
Nonetheless, Westpac acknowledged that the royal commission was performing an important service.
“The royal commission has been a valuable and rigorous process,” the bank said in a statement.
“The stories and examples of poor behaviour affecting customers that have come to light are confronting.”
The consumer bank, which includes the lender’s mortgage book, reported flat cash earnings of $3.14 billion as home loan growth continued to moderate.
Flagging housing credit growth of four per cent and total credit growth of 3.5 per cent for FY19, Mr Hartzer suggested the housing market would remain challenging.
“We expect house prices to cool further, and investor demand to remain weak,” Mr Hartzer said.
“On the other hand, demand from first home buyers is holding up.”
Unlike its major rivals, Westpac has maintained a large exposure to wealth management and the division’s cash earnings plummeted 12 per cent over the year – and 40 per cent half-on-half – partly due to increased refund provisions.
The institutional business also reported lower earnings, but Westpac’s business bank lifted cash earnings eight per cent and the New Zealand unit five per cent.
Overall statutory profit was up one per cent to $8.095 billion, while cash earnings per share dropped one per cent and the 13 per cent return on equity was at the lower end of Westpac’s target range.
At 1045 AEDT on Monday, Westpac shares were up 2.5 cents, or 0.1 per cent, at $26.525.
* Cash earnings flat at $8.07b
* Statutory profit up one per cent to $8.099b
* Net operating income up two per cent to $22.133b
* Final dividend flat at 94 cents, fully franked