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Westpac has announced a $1.5 billion share buyback despite its boss warning the Australian jobs market will be tested next year and that consumer sentiment remains weak, as the bank’s profit jumped to $7.2 billion on the back of steady margins and loan growth.
Chief executive Peter King said Westpac’s balance sheet was the strongest he’d seen in his 29 years at the bank, but that it would be a difficult year for the industry ahead.
Westpac chief executive Peter King said consumer sentiment remained weak but there were only modest increases in customer hardship.Credit: Oscar Colman
“The second half of 2023 presented a more challenging environment for Westpac and the broader industry,” he said. “This is expected to continue into 2024.”
Westpac posted a net profit of $7.2 billion, up 26 per cent on the previous financial year. King said the result was built on the back of growth in deposits, mortgages and institutional banking.
The bank also announced a final dividend of 72 cents a share, taking the total dividend for the full year to 142 cents, up 14 per cent on the previous year.
King said Westpac would commence a $1.5 billion share buyback as the bank’s credit quality remained resilient, and it exceeded regulatory capital and liquidity requirements.
While it had been a “challenging year” for customers, King said hardship levels remained below COVID levels.
“Households have been squeezed by cost-of-living pressures and rising interest rates, meaning some have had to adjust their spending to keep up,” he said. “We are not yet seeing significant increases in customers falling behind on repayments. But we remain focused on helping those who need it and encourage customers to call us early.”
The bank said there was a “modest increase” in mortgage portfolio delinquencies, institutional and banking loans, with credit impairment provisions – money set aside to cover loans that are unlikely to be paid back in full – of $4.9 million, up 7 per cent as a result of a weaker economic outlook.
Westpac’s credit impairment charges were $648 million, or 9 basis points of average loans, compared to 5 basis points in the previous year.
Westpac grew its loan book by 5 per cent to $773 billion over the year, including a $23 billion increase in home loans and a $12 billion increase in business loans. Customer deposits increased by $28 billion.
The bank’s net interest margin – which compares funding costs with what lenders charge for loans – increased 2 basis points to 1.95 per cent. This was partly driven by a wider deposit spread (the difference between interest rates charged to customers and the interest rate the bank pays) in the first half.
Westpac’s operating expenses, excluding notable items, were up 1 per cent on the back of stronger wages, third-party vendor costs and higher software expenses.
Looking ahead, King said there were uncertainties in the economic outlook but that there were “glimmers of hope.”
“While inflation is coming down, challenges remain, including volatile energy prices and geopolitical uncertainty due to conflict in Europe and the Middle East,” he said. “Consumer sentiment remains weak, but there are glimmers of hope with some cost pressures starting to ease for businesses, which in time should flow through to prices paid by consumers.”
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