Westpac announces big fall in profits

Monday, 8 May 2023

Westpac’s decreased profit comes as a result of increasing bad debts.

Westpac made an after-tax profit of $426 million in the six months to the end of March.

That represented a fall of 33% on the same period the previous year when the bank posted an after-tax profit of $640m.

The fall in profit came despite the bank being able to charge customers higher margins in the six months to the end of March compared to the same six-month period the year before.

Chief executive Catherine McGrath said the drop in profit was the result of the bank having to set more money aside to provision for bad loans, and well as last year’s profit being swelled by the sale of the Westpac Life insurance company.

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McGrath said she had seen some positive momentum during the six-month period, and the profit before provisions for rising bad debts was actually up 8%.

“More New Zealanders have chosen to become Westpac customers, and we have grown mortgage lending by 5%, business lending by 4% and deposits by 2%,” she said.

Chief executive of Westpac Bank Catherine McGrath says there is positive momentum in the bank.

“We’re in a stable and well-capitalised position and are well-placed to support our customers.”

Westpac recorded a $154m increase in provisions on loans, saying the extreme weather events at the start of the year had played a big part in that.

She said another factor was the deteriorating economic outlook.

“Our economists are forecasting a recession this year. The global outlook remains uncertain, and funding markets are moving around. In addition, inflation and consumer spending remain high, increasing the risks of a hard landing.

“The rising cost of living has squeezed households and interest rates have risen quickly. While we are not currently seeing significant numbers of customers requiring hardship assistance, demand is slowly increasing, and we expect it to rise further as the outlook worsens.”

She said about 7000 customers a month were coming off a fixed-rate home loan, and faced paying higher rates.

Late last month, the Reserve Bank Te Pūtea Matua said homeowners with a mortgage could expect to be paying 22% of their disposable income in interest payments on their home loan on average by the end of the year.

Some dairy farmers with high levels of debt are struggling.

That would be up from a low of 9% in 2021, and the increase would be much higher for many recent home-buyers with hefty mortgages.

Also dragging on Westpac’s result was increased “stress” in its dairy farming loan book, as well as rising stress in its commercial property loans

Westpac is the third of the big banks to release its half-year results, following new record half-year profits released last week by ANZ and BNZ.

ANZ’s half-year after-tax cash profit was $1.107 billion, up 14% on the same period the previous year, while BNZ’s $805m was up 13.5%.

The run of record half-year bank profits follows KPMG’s prediction last month that factors like the weakening economy, falling house prices, and rising bad debts might put an end to the run of record bank profits.

A presentation to investors on the Australian ASX sharemarket showed Westpac was the least-loved of the big banks. Its net promoter score (NPS) was eight compared to a range of 15 to 33 in its four big bank rivals.

An NPS measures the net likelihood of customers recommending an organisation to other people, and is calculated by subtracting the proportion of customers who are “detractors” who score it zero to six on a scale of zero to 10, from the proportion of customers who are “promoters” and score it nine to 10.

Despite the result in New Zealand, Westpac’s entire business, including its Australian business has been going well.

Peter King, chief executive of the entire Westpac Bank group, said its A$4b after-tax profit for the six months to the end of March was up 22% on the same period in the previous year.

In the second half of the bank’s financial year, it would face slowing economies in Australia and New Zealand.

“Westpac enters this environment from a position of strength,” he said.