Source : THE AGE NEWS
Westpac says fewer customers are struggling to make their loan repayments and the economy is showing signs of resilience to the cost of living crisis, but the banking giant has pointed to an uncertain outlook in its latest profit results.
The country’s second-largest mortgage lender on Monday said stressed loans had fallen in the latest half, and the number of people who were more than 90 days behind on their mortgage had fallen.
Despite the decline in bad debts, Westpac’s profitability is being squeezed by greater competition.Credit: Getty Images
However, the bank’s net profit after tax fell 1 per cent to $3.3 billion in the half, despite chief executive Anthony Miller highlighting customers’ resilience in dealing with the pressures caused by the cost of living and high interest rates.
Westpac’s credit impairment charge fell to only 6 basis points of average loans, down from 9 basis points a year earlier. The profit result is slightly softer than markets had expected.
“The resilience of customers who have navigated significant cost-of-living challenges over the past few years is impressive. We’re pleased we’ve been able to support customers through this period and RBA rate cuts are now also providing welcome relief,” Miller said.
“This resilience is reflected in the improvement in credit quality metrics, indicating we may have passed the low point in the cycle.”
Following recent turmoil caused by Donald Trump’s trade war, Westpac said escalating trade and ongoing geopolitical tensions had created a “volatile and uncertain outlook”, which could affect consumer confidence and lead to funding market volatility.
“Geopolitical uncertainty is a key risk that’s as high as it has been for a very long time,” Miller said. “Changes to global trade policies have impacted markets and funding for the bank. Despite the volatility, it’s important that we look through the noise and avoid reacting to the headlines. Australia is well-placed to handle the instability.”
Despite the decline in bad debts, Westpac’s numbers suggested its profitability had been squeezed by ongoing competition in the home loan market, where the bank expanded its mortgage portfolio slightly slower than the rest of the market.
Westpac’s net interest margin – which compares funding costs with what it charges for loans – dipped by 2 basis points to 1.92 per cent in the half, and the bank said this was because of tighter spreads on loans and deposits. The bank’s net interest income also decreased by 2 per cent to $9.6 billion.
The bank will pay a dividend of 76¢ a share, which is the same as the dividend in the second half of last year. Miller said the bank was “managing margins actively in a competitive environment,” highlighting 14 per cent growth in its lending to businesses, and 15 per cent growth in lending to institutional clients such as major corporations.
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