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Westpac share price lifts as it flags rising net interest margins

The Westpac Banking Corp (ASX: WBC) share price is up 0.6% today after the banking heavyweight delivered a trading update for the first fiscal quarter ending December 31 2019.

The bank expects cash earnings of $2.04 billion which compares to the cash average of $2.05 billon per quarter over the second half of fiscal 2018 when backing out remediation costs.

In other words Westpac is set to deliver flat to marginally down cash earnings over Q1 FY 19 in a result to appease investors concerned that an environment of Royal Commission-induced slowing credit growth and falling house prices will take its toll on the lender.

Westpac also flagged it expects higher net interest margins (NIM) over the period, with a lower contribution from its treasury and markets division due to weaker “trading conditions”. This is a similar theme to that reported by regional lender Bank of Queensland (ASX: BOQ) this morning, except that BOQ reported a minor fall in its NIM.

Westpac’s NIM over the second half of 2018 fell 12 basis points to 2.05% but is still around 10 basis points ahead of Bank of Queensland’s expected NIM as its superior credit rating to smaller lenders gives it lower wholesale funding costs.

This speaks to the competitive advantages Australia’s dominant big 4 banks offer shareholders, despite regulatory pressure increasing on their lending practices.

Despite today’s rise the Westpac share price is still down around 13% over the past year excluding the beneficial impact of dividend payments.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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