WESTPAC'S first-half net profit slipped 1.2 per cent, and it slashed its interim dividend, as a sharp rise in bad loans offset higher revenues generated from its acquisition of St George Bank.
Westpac, Australia’s largest bank by market capitalisation, said in a statement that net profit for the six months ended March 31 fell to $2.18 billion from $2.20 billion a year earlier.
The reported figure includes results for St George from November 18, 2008.
Cash earnings, the preferred measure of profitability because it excludes one-off items, fell 6 per cent to $2.295 billion.
Analysts had forcast cash earnings of $2.28 billion.
The lender also slashed its interim dividend to 56c a share from 70c a year ago, in line with moves by rivals.
COMPANY PROFILE and CHART
Although Australia’s major banks have managed to avoid the worst of the global credit crunch, they have sought to boost their capital positions to cushion against rising bad loans.
Revenue rose to $8.09 billion from $5.9 billion a year ago, and the group’s net interest margin improved to 2.24 per cent, up 24 basis points on year.
Impairment charges for bad and doubtful debts rose to $1.56 billion from $433 million a year earlier, in part due to St George’s loan book, but mostly reflecting the group’s exposure to failed corporates ABC Learning, Allco and troubled loans to Babcock & Brown International.
The group also cited a step up in losses in its margin lending book.
Chief executive Gail Kelly said that impairment charges were likely to continue to rise in the coming 18 months.
“While the larger impairments associated with the impacts of the global financial crisis appear largely behind us, we are seeing more pressure across our business customers and expect consumer stress to grow as unemployment rises,” Ms Kelly said.
“As a result we expect impairment charges to remain at a high level throughout the second half of 2009 and into 2010.”
The bank noted that credit quality has deteriorated in Australia, but the severity is likely to be less than in other developed economies such as the US and the UK thanks to a number of factors, including the nation’s “healthy banking sector” and the relative strength of the nation’s economy going into the downturn.
Bad debt impairments on a proforma basis were $1.611 billion, and the group said total provisioning now stands at $4.5 billion. Proforma results assume the merger was completed on October 1, 2007.
Ms Kelly, a former St George Bank chief, said Westpac was making good progress with its integration of St George.
St George reported proforma cash earnings of $529 million for the half, up 6 per cent on year, and impairments increased by $115 million on year.
The group’s Westpac retail and business banking arm recorded a 17 per cent improvement in cash earnings, supported by strong growth in lending and deposits.
But its institutional bank saw a 62 per cent drop in proforma cash earnings to $158 million, as sour loans offset strong revenue growth in its markets and transactional services offerings.
Its BT Financial funds management arm recorded a 17 per cent drop in cash earnings on a proforma basis, impacted by lower fees from funds under management due to weak investment markets.
Westpac’s New Zealand arm recorded a 15 per cent decline in cash profit to $NZ202 million ($158 million), primarily due to higher impairment costs resulting from the “deepening and prolonged recession” in that country.
Ms Kelly said the group’s markets division revenue growth was likely to remain positive, the strong result seen during the first half was unlikely to be repeated, but the bank expected system credit growth to continue to slow.
On a proforma basis, total loan growth for the first half was 9 per cent, and deposits grew 8 per cent on year, with consumer deposits up 27 per cent, ahead of sector growth and helping the group’s overall funding position.
The bank said it was well progressed in its fiscal 2009 term funding task, and expected second-half term issuance to be significantly lower than that seen in the first half. It also reported strong reverse interest for its bonds.
Westpac's Tier 1 capital position at the end of the period was 8.37 per cent, which chief financial officer Phil Coffey described as “ample”.
source: www.theaustralian.news.com.au
