The Westpac Banking Corp (ASX: WBC) share price is falling on Monday morning.
At the time of writing, the banking giant's shares are down almost 4% to $32.19.
This follows the release of its half year results before the market open.
Westpac share price sinks on results day
For the six months ended 31 March, Westpac posted a 3% decline in net interest income to $9,351 million.
However, excluding notable items, the bank's interest income was stable, reflecting the balancing of margin and volume growth, particularly in mortgages. This reflects a contraction in its core net interest margin (NIM), which was offset by a 2% increase in average interest-earning assets.
Westpac's Core NIM was 1.80%, which contracted by 3 basis points from tighter loan spreads due to lending competition along with narrower deposit spreads and a mix shift towards lower margin savings accounts.
Non-interest income increased 5% to $1,442 million. Though, excluding notable items, non-interest income increased by 3% due to higher Markets income.
Westpac's operating expenses increased 3% to $5,698 million. Management advised that this reflects the expected step up in UNITE investment, salary and wage growth along with increased software amortisation. Cost reset actions and seasonally lower spend across other investments provided a partial offset.
This led to Westpac recording a pre-provision profit before one-offs of $5.3 billion, down 2% on the prior period. This fell short of the $5.422 billion that Macquarie was forecasting for the half.
And on the bottom line, the bank reported a net profit of $3,317 million, which was down 9% on the prior period. Excluding notable items, net profit decreased 4%.
Despite the softer profits, the Westpac board elected to keep its dividend flat from the prior half at a fully franked 76 cents per share.
Management commentary
Westpac's CEO, Anthony Miller, was pleased with the half. He said:
This result confirms Westpac's strong position. We are growing in the areas we're targeting and supporting customers through uncertain times. I'm pleased with the way our people have galvanised around our priorities. This First Half Result demonstrates our achievements and ensures we are ready for the challenges ahead. Westpac's very strong balance sheet is important given global uncertainty.
This half, we focused on balancing growth and return. We're actively managing margins in a competitive environment, with growth in our target segments. Our strategic tilt to business and institutional banking is delivering results without compromising lending standards. Since 1H24, Australian business lending increased 14%, with strong growth across target sectors of health, professional services and agriculture. Institutional lending increased 15%.
Outlook
Miller appears cautiously optimistic on the bank's outlook. He concludes:
Australian economic growth is expected to recover from 1.2% in 2024 to 1.9% in 2025, with private demand likely to overtake the public sector as the primary driver of activity. Inflation is moderating and interest rates are trending downward. Recent data also shows household spending modestly improving while business conditions are just below average levels.
The easing of financial conditions in New Zealand is expected to support an improvement in economic activity during 2025. Westpac's strong financial position provides flexibility to withstand geopolitical uncertainty and support customers.
No guidance was given for the second half.
