The Westpac Banking Corp (ASX: WBC) share price will be one to watch on Monday.
Westpac share price on watch amid strong profit growth
- Net operating income up 36% to $21,645 million
- Pre-provision profit up 24% to $10,953 million
- Profit after tax up 26% to $7,201 million
- Core net interest margin up 12 basis points to 1.87%
- CET1 ratio up 109 basis points to 12.38%
- Full-year dividend up 14% to 142 cents per share
- $1.5 billion share buyback.
What happened during FY 2023?
For the 12 months ended 30 September, Westpac reported a 36% increase in net operating income to $21,645 million.
This reflects a 7% increase in net interest income to $18,317 million and a 36% jump in non-interest income to $3,328 million. The former was driven by owner-occupied mortgages and loans to business customers across the commercial property, agriculture and institutional banking sectors.
Westpac's group net interest margin (NIM) was up 2 basis points to 1.95% for the period. Whereas its core NIM (excluding notable items, treasury and markets) expanded by 12 basis points to 1.87% thanks to higher return on capital balances and increased deposit spreads. This was partly offset by tighter loan spreads due to intense competition as well as an increase in low returning liquid assets.
While Westpac may have scrapped its cost cutting targets, it did report a 1% reduction in operating expenses to $10,692 million. Management advised that inflationary pressures on wages, third-party vendor costs and higher software and regulatory expenses were largely mitigated by the benefits of its cost reset and simplification programs.
The bank reported a lift in impairment charges to $648 million, which represents 9 basis points of average loans, up from 5 basis points in the prior year. The rise was mainly from a higher collective provisioning (CAP) charge of $769 million more than offsetting an individually assessed provisioning (IAP) benefit of $121 million.
This ultimately led to Westpac reporting a 26% increase in net profit after tax to $7,201 million.
A final fully franked dividend of 72 cents per share was declared, bringing its full-year dividend to 142 cents per share. The returns won't stop there, though. Westpac has announced a $1.5 billion share buyback.
How did its segments perform?
It was Westpac's business and institutional segments doing the heavy lifting during the 12 months. They reported a 77% increase in pre-provision profit to $1,628 million and a 54% lift to $1,061 million, respectively.
This helped to offset a 7% decline in consumer pre-provision profit to $3,052 million and an 18% decline in New Zealand profit to $887 million.
Westpac's CEO, Peter King, was pleased with the 12 months. He said:
Over the past year we've further strengthened the bank, improved our financial performance and continued to support customers in a rising interest rate environment. This result delivers a better return on equity, higher earnings per share and increased net profit. This is built on the back of growth in key markets including deposits, mortgages and institutional banking.
The second half of 2023 presented a more challenging environment for Westpac and the broader industry. This is expected to continue into 2024. We've restructured our divisions to focus on growth, returns and improving customer service while rebalancing investment between risk, growth and productivity to support our strategy.