Westpac Banking Corp (ASX: WBC) shares will be in focus on Monday.
That's because Australia's oldest bank has just handed down its latest quarterly update.
Let's see how the bank performed during the third quarter of FY 2024 compared to the quarterly average during the first half.
Westpac shares on watch following Q3 update
- Net operating income up 1% on to $5.4 billion
- Operating expenses up 2% to $2.7 billion
- Pre-provisioning profit up 1% to $2.6 billion
- Net profit after tax up 6% to $1.8 billion
- Net interest margin (NIM) up 3 basis points to 1.92%
- CET1 ratio at 12%
What happened during the quarter?
For the three months ended 30 June, Westpac reported a 1% increase in net operating income to $5.4 billion.
This reflects a 2% lift in net interest income to $4.7 billion, which offset a 4% decline in non-interest income to $0.7 billion. The former was boosted by a 3 basis points increase in its NIM to 1.92% and loan growth of $14.7 billion.
Westpac's NIM comprises 1.8% from its core NIM (up 2 basis points thanks to higher earnings on capital and hedged deposits), 12 basis points from its Treasury and Markets income (down 2 basis points), and hedging items of negative 2 basis points. Management expects the latter to reverse over time.
The bank's expenses increased by 2% during the quarter. This was due to higher investment spend, which is being weighted towards the second half 2024. In addition, ongoing inflationary pressures, particularly in technology services, put pressure on costs.
Nevertheless, this couldn't stop Westpac from recording a 6% increase in net profit after tax to $1.8 billion or a 2% increase excluding notable items.
Another positive was that its impairment charges to average loans was 4 basis points for the quarter. This is down from 9 basis points, which management believes reflects an improvement in the economic outlook.
Management commentary
Westpac's CEO, Peter King, shared his view on the quarter. He said:
Our consistent focus on customer service has contributed to another solid quarter. We grew the business and maintained a strong financial position. Our unaudited net profit of $1.8 billion was up 6% compared to the first half 2024 quarterly average. Excluding the impact of Notable Items, related solely to hedge accounting which will reverse over time, unaudited net profit increased 2% to $1.8 billion. The slight decline in pre-provision profit was more than offset by a reduction in impairment charges.
Net interest margin (NIM) of 1.92% was well managed with Core NIM rising 2 basis points to 1.82%. Operating momentum was positive with customer deposit growth of $15.4 billion and loan growth of $14.7 billion. This includes Australian household deposit growth of 3% and housing loan growth of 8%, which outperformed system.
King also touched on the cost of living crisis and higher interest rates. He said:
We continue to prioritise financial strength with capital, funding and liquidity well above regulatory minimums. The cost of living and high interest rates remain a challenge for some customers while many businesses are facing cost pressures and experiencing lower demand.
Westpac shares are up 44% over the past 12 months.
