Westpac Reports 3% Profit Dip but Eyes Growth Recovery in 2025
The annual net profit of Australia’s Westpac Banking Corp. dropped by 3% to AUD 6.99 billion (USD 4.59 billion) during the 12 months that ended in September 2024.
Despite the decline, the bank said it was confident in its growth predictions and expected that home and corporate loans will increase in 2025 as the RBA is expected to begin lowering interest rates.
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Revenue Stability and Dividend Increase
The year-end revenue of AUD 21.59 billion was consistent. Westpac raised the final payment to 76 Australian cents per share, up from 72 cents the year before, despite a minor decline in profitability, mostly as a result of higher operating costs brought on by a technology revamp.
According to CEO Peter King, this puts the fiscal year’s total payout at the higher end of Westpac’s distribution range, at AUD 1.51 per share.
Westpac’s net interest margin (NIM), an important measure of profitability that shows profits from loans less interest paid on deposits, was 1.95 percent for the year, a mere one basis point lower than the previous year’s figures.
Despite intense competition in the mortgage market, the NIM showed improvement in the second half of the fiscal year, rising to 1.97% from 1.89% in the first half.
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Rising Operating Costs and Share Buyback Expansion
A 7% increase in operating costs as a result of inflationary pressures and higher technology spending had an impact on the bank’s overall earnings. But Westpac is still working to increase shareholder value, and it has increased its share buyback program by AUD 1 billion.
Comparatively speaking to other central banks around the world, Australia’s RBA has been cautious regarding rate reduction. The RBA is not expected to begin lowering interest rates until about April or May 2025, while both the Bank of Canada and the Reserve Bank of New Zealand have started to do so.
Westpac expects that rate cuts would increase demand for household and commercial loans while also benefiting users by making debt easier to manage.
Westpac added that the company’s consumer and business banking businesses were doing well. In the second half of the fiscal year, net profit increased by 6%, despite the consumer banking unit’s net profit dropping 17% from the previous year to AUD 2.18 billion.
The net profit of the business division rose 13% to AUD 2.36 billion, while the institutional bank reported a slight 2% profit improvement to AUD 1.37 billion.
CEO Peter King is stepping down after 5 years in the job. He emphasized Westpac’s strong capital position, pointing out that its average equity Tier 1 capital ratio of 12.5% is an increase of 11 basis points over the prior year. This substantial amount of capital allows the bank to manage potential economic risks, including international elections and geopolitical issues.
Analyst Outlook and Favorable Conditions for 2025
According to Westpac, favorable conditions in 2025, such a likely drop in interest rates, a lack of suitable real estate, and population growth, will increase demand for loans. Even with Westpac’s current cost issues, analysts remain optimistic for the time being. UBS notes that the bank’s underlying NIM trends appear to be positive.
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