SYDNEY, AAP – Westpac has unveiled a $3.5 billion share buyback after posting a surge in annual earnings on the back of a strong home loans market and lower provisions.

Australia’s second-largest lender on Monday reported full year cash earnings, which strip out items such as hedging impacts and one-off events, more than doubled to $5.35 billion after it wound back some provisions to cover potential COVID-related loan losses.

Statutory net profit for the 12 months to September 30 was 138 per cent higher at $5.46 billion, despite a challenging period in the second half of the year.

“A turnaround in impairment charges and lower notable items were the main drivers of our improved earnings, while we also restored growth in mortgages and have begun to see better momentum in our institutional and business portfolios,” chief executive Peter King said.

Westpac also announced an off-market share buyback, becoming the last of the Big Four banks to do so.

The bank said its buyback up to $3.5 billion comes after it considered the improved economic outlook and its strong capital position following a number of asset sales in the past year.

Westpac shares tumbled despite the strong profit results, as investors fretted about lower margins and higher than expected costs. By 1145 AEST, Westpac shares were down 6.1 per cent to $24.11, their lowest level since March.

Margins were down amid stiff competition and a low-rate environment, with costs rising in fiscal 2021 due to an increase in workforce to improve risk management and to support higher business volumes.

Net interest margins, which reflect the difference between what banks charge versus the cost of a loan, fell 4 basis points to 2.04 per cent.

“Our underlying results are not where we want them to be, and we recognise we have more to do to become the high-performing company we aspire to be,” Mr King said.

“This performance highlights the ongoing pressure on banks’ net interest margin, which we expect to continue due to lending competition and low interest rates, as well as higher levels of liquid assets as APRA phases out banks’ reliance on the RBA’s Committed Liquidity Facility,” ratings agency Moody’s said.

The capital return and profit lift comes despite the lender last month announcing writedowns worth $1.3 billion, including a $967 million hit at its institutional banking unit and additional provisions for customer refunds and litigation costs.

But Mr King said overall credit quality had remained remarkably good, with stressed exposures continuing to decline after last year’s peak, while mortgage delinquencies were also significantly lower.

That helped it write back $590 million of the provisions it had made at the peak of the pandemic last year, when earnings had slumped.

The bank is making progress in turning around its home loans business, expanding its mortgage portfolio by 3 per cent or $14.7 billion over the year.

Meanwhile, Westpac expects economic growth to rebound over the coming months as NSW and Victoria reopen after extended lockdowns and consumer spending lifts.

The bank will pay a fully franked final dividend of 60 cents a share, taking the annual payout to $1.18 a share.

WESTPAC FY PROFIT SURGES

* Revenue up 5.0pct to $21.22b

* Cash profit up 105pct to $5.35b

* Statutory profit up 138pct to $5.46b

* Fully franked final dividend 60cps vs 31cps