The Westpac Banking Corp (ASX: WBC) share price will be one to watch today this morning.
This follows the release of the banking giant's first quarter update.
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Westpac share price on watch following Q1 growth
- Unaudited cash earnings of $1.58 billion, up 74% (1% excluding notable items) over the quarterly average during the second half of FY 2021
- Net interest margin down 8 basis points to 1.91%
- Expenses down 7% excluding notable items to $2.7 billion
- CET1 capital ratio of 12.2%
- Impairment charge of $118 million
What happened during the quarter?
The Westpac share price will be on watch today after it released a first quarter update that appears to have fallen short of expectations.
For the three months ended 31 December, Westpac's unaudited cash earnings came in at $1.58 billion. While this was a 74% increase over the quarterly average during the second half of FY 2021, or 1% excluding notable items, the team at Bell Potter was forecasting cash earnings of $1.82 billion.
Management advised that this reflects lower expenses, and a strong contribution from Treasury and Markets, which were partly offset by lower net interest margins, a turnaround in impairment charges, and the absence of revenue from businesses sold, particularly insurance.
In respect to its net interest margin, which came in 8 basis points lower at 1.91%, management blamed competitive pressure in mortgage and business lending and the continuing growth in lower spread fixed rate mortgages. Unfortunately, given these competitive pressures, the bank expects its net interest margin to decline further through FY 2022.
Another disappointment that could weigh on the Westpac share price today is its impairment charge of $118 million. While asset quality continues to improve, the bank believes it is prudent to increase provisions due to continuing uncertainties relating to COVID-19. Particularly given the current supply chain disruptions and reduced activity in certain sectors.
Management commentary
Westpac's CFO, Michael Rowland, was pleased with the bank's start to the year.
He said: "We have made a sound start to the year and we are seeing the cost benefits of our simplification programs. The environment however remains highly competitive, and we continue to see pressure on margins."
"Given this, we are bringing forward our simplification plans and changing our operating structure to improve efficiency and move more of our people closer to the customers they support."
These plans will see Westpac create a smaller, more focussed head office, reducing the size of corporate functions by around 20%.
Westpac's CEO, Peter King, said: "We are building a simpler bank, streamlining our organisation and lowering the cost of running the Group. This is key to delivering better services for customers and better results for shareholders. The changes are primarily across head office and support functions, and not customer-facing roles. Bringing our workforce closer to the frontline, combined with the increases we have already made to the number of bankers, will further strengthen our franchise for customers."
