The Westpac Banking Corp (ASX: WBC) share price will be in the spotlight this morning after it posted a $1.97 billion quarterly cash profit.
The big bank's result reaffirms the recovery in the sector as the December quarter profit was up on the 2HFY20 quarterly average of $808 million.
Westpac's statutory net profit was also sharply higher at $1.7 billion compared to the average $550 million in its second half.
The real highlight in Westpac's results
But Westpac managed to do something its peers have so far been unable to – that is to lift profit margin!
The bank's net interest margin (the difference between the cost of debt and how much the bank can charge for loans) expanded 3 basis points (bps) to 2.06%.
The NIM for Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB) fell in their latest earnings reports. Australia and New Zealand Banking GrpLtd (ASX: ANZ) has yet to release its update and is the last of the big four to do so.
Westpac pulls on growth levers
Coming back to Westpac's profit recovery, it's not only margins that is driving earnings. The bank recorded an impairment benefit of $501 million in the period as the COVID-19 shock receded.
ASX banks were forced to squirrel away extra cash to buffer from the possibility of widespread loan defaults due to the pandemic.
The economic impact of COVID weren't as severe as originally feared and every dollar that the banks release from provisions and impairments will flow straight back to the bottom line.
Less stress on the Westpac share price
Westpac reported that total stressed assets on its balance sheet fell 15bps, with almost all industry segments improving.
The number of mortgagees that are behind payments by 90 days or more have also fell 6bps to 146bps.
Meanwhile, the bank's core earnings grew 28% in the period, although it was up a more modest 3% if one-off items were excluded.
Improving outlook for ASX banks
The net impact of these tailwinds has bolstered Westpac's CET1 ratio by 74bps to 11.9%. That's above the banking regulator's "unquestionably strong" benchmark.
There were no hints on dividends as this is only a quarterly update. The bank will report its half year results in May and will unveil its dividend decision then.
But don't get too use to getting these quarterlies from Westpac. The COVID scare has passed in the bank's view and it will return to past practice of not releasing quarterly earnings. This could be the biggest negative in the earnings announcement, in my view.
