The Westpac Banking Corp (ASX: WBC) share price's future success is likely to be heavily influenced by how much profit it makes in the coming years.
FY28 may sound like a distant financial year, but it's just as close as FY20.
Knowing the bank's potential profitability between FY24 and FY28 can help investors determine a good price to pay today and whether the dividend can grow from its current levels.
I'm not going to focus on the dividend in this article, but as profit pays for the dividend, rising profit could lead to a growing dividend.
Let's start by looking at the forecast for the 2024 financial year, which finishes today (30 September 2024).
First, the forecast for FY24
The major bank has had to deal with a challenging operating environment in Australia, with some households going into arrears and a competitive environment in the lending and deposit space.
Broker UBS expects Westpac's net profit to decline in FY24 to approximately $7 billion, down from $7.2 billion in FY23. That's despite revenue forecast to be virtually identical.
The broker is positive about the new CEO and managing director Anthony Miller, which it said removed the "overhang" from the stock. UBS thinks Miller is "well regarded internally" at the bank and externally by key stakeholders, including major shareholders.
Despite operational challenges and lost market share over the long term, UBS is seeing "some level of operational momentum, as shown by above market growth rates and market share gains".
Next, FY25
UBS believes there is an upside in Westpac shares in FY25 if its operational projects can be "accelerated or ultimately delivered on".
The broker has a price target of $30 on the ASX bank share, which suggests the Westpac Bank share price could fall by approximately 6% during the 2025 financial year.
UBS is forecasting that Westpac's net profit could drop again to $6.9 billion in FY25, representing a 1.1% decrease year over year.
While that's not much of a decline, it would be disappointing that the profit is still going in the wrong direction, considering interest rates may fall during 2025.
What are the predictions for FY26?
The 2026 financial year could be when the profit declines are halted.
The ASX bank share could generate $22.75 billion of revenue in FY26, which would be higher than both FY24 and FY25.
It will be interesting to see how the net interest margin (NIM) of Westpac and the wider industry plays out in the next few years. The NIM tells investors about its profit margin, comparing the loan rate (revenue for Westpac) to the cost of its funding, such as savings accounts and term deposits (which are an expense for the ASX bank share).
UBS expects the bank to make $7.2 billion of net profit in FY26, which would be a rise of 3.9% year over year.
How about FY27?
The economic environment could be improving for Westpac and the Australian economy by the 2027 financial year.
UBS expects FY27 to be the best year of the series so far, which could see further improved revenue generation by the bank. FY27 is projected to see $23.45 billion of revenue and net profit of $7.5 billion.
If Westpac achieves $7.5 billion in net profit, it would represent a 4.3% year-over-year rise.
Finally, FY28
The 2028 financial year could be the best year of the lot. The 2028 financial year is quite far away, so it could be considerably better, or worse than currently forecast
Given that FY28 is difficult to predict accurately, UBS currently projects that Westpac could make revenue of $24.3 billion and achieve a net profit of $7.93 billion.
On that basis, the net profit could be 5.7% higher than FY27 and 13.2% higher than FY24. Profit growth would be good, but 13% is not exactly a huge increase, so I'm not expecting a lot of Westpac share price growth in the next few years.
