Sydney / AFP
Australian banking heavyweight Westpac posted a three percent rise in interim net profit on Monday as it battles regulatory changes and rising bad loans, disappointing investors who savaged the share price.
Westpac’s Aus$3.70 billion (US$2.81 billion) result in the six months to March 31 kicked off a week of half-yearly reporting from the nation’s top lenders, which all face similar concerns.
Slumping commodity prices are squeezing Australia’s resources companies, causing worries for banks that have lent them billions of dollars.
The banks are also juggling new rules by the Australian Prudential Regulation Authority that demand they hold more reserves as a buffer against mortgages — part of a global effort after the 2008-9 financial crisis.
Westpac’s cash profit, the industry’s preferred measure which strips out volatile items, was Aus$3.90 billion.
This was below expectations and its stock was sold off, slumping 3.54 percent to close at Aus$29.50.
“The increase in bad debt provisions is a bit larger than generally expected,” said CMC Markets chief analyst Ric Spooner, explaining the market reaction.
Impairment expenses of Aus$667 million, to firms it did not identify, were recorded for the first half, almost double last year’s level.
“This was mainly about four large corporate debtors and problems in this area had previously been flagged to the market,” added Spooner.
Chief executive Brian Hartzer said the result was sound given the
“Westpac remains well-placed to respond to this challenging environment,” he said.
“We have strengthened our balance sheet and made good progress implementing our strategy to build one of the world’s great service companies by investing in growth, service and productivity initiatives.”
In response to the regulatory changes, the bank raised around Aus$6.0 billion in equity over calendar 2015 which Hartzer said had “materially strengthened the group’s capital base” but which impacted earnings per share.
“Importantly, on most measures, overall asset quality remains sound, with the level of stressed assets little changed over the half,” he added.
“There have been a few pockets of stress, mostly related to lower commodity prices, and an increase in provisions for a small number of larger exposures, which contributed to a rise in impairment charges.”
Despite rising bank funding costs and tougher capital rules, Westpac managed to raise its dividend by one cent to 94 cents per share from the same period last year.
ANZ Bank reports its interim profit on Tuesday while National Australia Bank follows on Thursday.
The Commonwealth Bank, the country’s biggest lender, follows a different cycle. In February it posted a modest two percent rise in first-half net profit to Aus$4.62 billion.
Westpac Banking Corporation, more commonly known as Westpac, is an Australian bank and financial-services provider headquartered in Westpac Place, Sydney. It is one of Australia’s “big four” banks. Its name is a portmanteau of “Western-Pacific”.
As of November 2015, Westpac has 13.1 million customers, and is Australia’s largest branch network, with 1429 branches and a network of 3850 ATMs. The bank is Australia’s second-largest bank by assets. It is also the second-largest bank in New Zealand.
On 29 January 2015, Bank of South Pacific announced that it had entered into an agreement to acquire Westpac’s banking operations in Samoa, Cook Islands, Solomon Islands, Vanuatu and Tonga for A$125 million.
Westpac Institutional Bank (WIB) delivers a broad range of financial services to commercial, corporate, institutional and government customers. It operates through dedicated industry relationship and specialist product teams, with expert knowledge in transactional banking, margin lending, broking and alternative investment solutions.
Ausie banks targetted ahead of earnings
As Australia’s largest banks report results this week, bearish wagers are on the rise. The level of short selling has surged an average 41 percent since the start of the year, Markit Ltd. data compiled by Bloomberg show.
The strategy may backfire if upcoming results and forecasts from the so-called Big Four lenders exceed expectations, according to analysts at the wealth management unit of Macquarie Group Ltd. Commonwealth Bank of Australia, National Australia Bank Ltd., Westpac Banking Corp. and Australia & New Zealand Banking Group Ltd. release results in May.