The Westpac Banking Corp (ASX: WBC) share price will be on watch today.
That's because Australia's oldest bank has just released its half-year results.
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Westpac share price on watch amid results release
- Net interest margin (NIM) up 5 basis points to 1.96%
- Net interest income up 10% to $9,113 million
- Operating expenses down 7% to $4,988 million
- Net profit after tax up 22% to $4,001 million
- Return on equity improved 205 basis points to 11.3%
- Fully franked interim dividend up 15% to 70 cents per share
- CET1 ratio up 95 basis points to 12.3%
What happened during the half?
For the six months ended 31 March, Westpac reported a 10% increase in net interest income to $9,113 million. This was underpinned by a 5% lift in its NIM to 1.96% thanks to rising interest rates.
Another positive was that Westpac reported a decent reduction in its expenses during the half. The company's operating expenses were down 7% to $4,988 million thanks partly to businesses sold.
Excluding notable items and these divestments, expenses were down 1% due to benefits of the simpler organisational structure, reduced use of third-party service providers, and lower remediation costs. This helped offset inflationary pressures on wages and third-party vendor costs.
This ultimately led to Westpac delivering a 22% increase in net profit to $4,001 million. Incidentally, Westpac has changed its internal and external reporting from reporting cash earnings to reporting statutory net profit from this result forward.
Management advised that this profit growth reflects the benefit of a higher net interest margin, growth in home and business loans and ongoing cost discipline. This was tempered by a rise in provisions for loan losses.
In light of this profit growth, the Westpac board elected to declare a fully franked interim dividend of 70 cents per share, which is up 15% year over year.
Outlook
Management appears reasonably optimistic on the future despite the challenging economic environment, which could be a positive for the Westpac share price today.
It highlights its healthy loan portfolio and how most mortgage holders are ahead with their repayments. It explains:
At a macro level, our loan portfolios remain healthy. Most mortgage customers are ahead on repayments. Offset balances were little changed and mortgage delinquency levels are low. Interest rates are now closer to their forecast peak, but we are focused on how long they stay high and what this means for household budgets and discretionary spending. We expect to see more stress in the period ahead, particularly in small business.
While the Australian economy remains resilient with low unemployment and high population growth, it is expected to slow over the remainder of 2023. Credit growth – both housing and business – will ease. Intense mortgage competition is expected to negatively impact industry and Westpac's margins in the next half.
Westpac enters this environment from a position of strength. We've set the balance sheet for the tougher outlook. We continue to run the bank conservatively, with the flexibility to support growth and handle the more challenging conditions.
