Australia’s Westpac profit drops 12%, falling costs provide reprieve

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Economy1 hour ago (May 08, 2022 06:55PM ET)

© Reuters. FILE PHOTO: A woman exits the ground floor of an office building with Westpac logo amidst the easing of the coronavirus disease (COVID-19) restrictions in the Central Business District of Sydney, Australia, June 3, 2020. Picture taken June 3, 2020. REUTE

By Savyata Mishra

(Reuters) -Australia’s Westpac Banking (NYSE:) Corp on Monday said continued margin pressure from competition in mortgage lending caused its first-half earnings to drop over 12% from a year-ago, but Westpac forecast lower expenses in the second half of the year with its cost reset plan in full swing.

Australia’s “Big Four” banks enjoyed a boom in home lending helped by low interest rates and a pandemic-fuelled shift to remote working that buoyed property markets. But their margins have been hit by competition and by borrowers’ moving to fixed-rate loans.

Westpac said net interest margin, a key profitability indicator, fell 15 basis points to 1.91% in the first half. It booked an impairment charge of A$139 million ($98.1 million) as it set aside more funds to cover bad debts related to recent floods in Australia and broader global uncertainty.

“The first half of 2022 has been challenging for many customers. Floods, the lingering effects of the pandemic and the impact of the war in Ukraine have set many customers back and created uncertainty,” Chief Executive Peter King said.

However, the country’s third-largest bank forecast second-half costs to be flat to 2% lower sequentially, a sign that its bold cost restructuring strategy was beginning to pay off.

Westpac, which is emerging from a costly turnaround to fix outdated software and convoluted procedures, said it cut more than 4,000 jobs in the first half and expenses fell 27% from the 2021 second half, putting it on track for its annual cost target of A$8 billion by fiscal 2024.

Cash earnings fell to A$3.10 billion ($2.19 billion) for the six months ended March 31 from A$3.54 billion reported a year earlier, but beat a Visible Alpha consensus forecast of A$2.83 billion.

Westpac declared an interim dividend of 61 Australian cents per share, compared with 58 Australian cents last year.

Last week, its peers National Australian Bank and Australia and New Zealand Banking Group forecast that their margins would benefit after the country’s central bank hiked rates and signalled more to come.

($1 = 1.4154 Australian dollars)

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