Westpac (ASX:WBC) posts 62% cash earnings decline in FY 2020

The Westpac Banking Corp (ASX:WBC) share price will be on watch this morning after posting a sharp decline in its cash earnings in FY 2020…

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The Westpac Banking Corp (ASX: WBC) share price will be in focus this morning following the release of its full year results.

How did Westpac perform in FY 2020?

For the 12 months ended 30 September, Australia’s oldest bank reported a 66% decline in statutory net profit to $2,290 million.

Things were equally as bleak for its cash earnings, which fell 62% year on year to $2,608 million or 63% to 72.5 cents per share.

However, this was largely in line with expectations. Analysts at Goldman Sachs, for example, were expecting Westpac to deliver a 63% decline in cash earnings before one-offs to $2,535 million.

Excluding notable items, cash earnings dropped 34% to $5,227 million.

Goldman also pencilled in a final dividend of 25 cents per share, with no interim dividend being paid for FY 2020.

That estimate was a little wide of the mark, with the bank declaring a 32 cents per share fully franked final dividend.

Other key metrics of note were its net interest margin of 2.08% (down 4 basis points) and its CET1 capital ratio of 11.13%. The latter is comfortably ahead of requirements.

Westpac Group CEO, Peter King, commented: “2020 has been a particularly challenging year and our financial result is disappointing. Our earnings have been significantly impacted by higher impairment charges, increased notable items and the sharp decline in economic activity.”

”At the same time, we have incurred higher expenses due to increased resourcing to handle unprecedented COVID-19 demands and fixing our compliance issues,” he added.

However, Mr King was pleased with the strength of its balance sheet.

He said: “We have, however, continued to maintain the strength of Westpac’s balance sheet. Our Common Equity Tier 1 capital ratio is at 11.13%. Customer deposits were up 6% over the year, with the deposit to loan ratio now more than 80%.”

Deferral update.

Westpac now has $16.6 billion in Australian home loans in deferral (41,000 mortgage accounts).

This has reduced from $54.7 billion or 146,000 mortgage accounts.

A further $1.0 billion in Australian small business loans are in deferral (4,300 small business customers). This is down from $10.1 billion or 32,900 small business customers.

Outlook.

Mr King advised that although Westpac expects economic growth to improve through 2021 and 2022, it also expects unemployment to remain elevated for some time.

He added: “We remain in an uncertain economic environment, however the recent budget has provided significant stimulus to businesses and households. Our economists expect at least half the personal tax cuts will be spent and businesses will respond to the generous depreciation allowances.”

Mr King said that despite the tough operating environment, Westpac remained well capitalised with a strong balance sheet and ample liquidity to continue to support its customers.

He believes this leaves Westpac well placed to continue to support customers through the crisis.

He concluded: “With our three priorities of fix, simplify and perform, we are becoming a simpler and stronger bank with a renewed focus on a culture to execute and improve performance.”

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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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