Australian no.2 mortgage lender Westpac has reported a first-half profit that fell short of expectations, citing contracting margins and warning of potential impacts from shifting global trade policies. The bank’s net profit for the six months ended in March dropped by 1% to A$3.32 billion, missing the Visible Alpha consensus estimate of A$3.43 billion.
Westpac’s chief executive, Anthony Miller, expressed concerns about geopolitical uncertainty and weakening business confidence, which could lead to softer consumer spending and business activity. He highlighted that funding spreads have widened since the end of the first half, and volatility in the markets may push funding costs higher.
The bank’s operating costs rose by 6% due to investments in technology and its UNITE simplification program, offsetting growth in home, business, and institutional lending volumes. Additionally, Westpac’s net interest margin (NIM) fell one basis point to 1.88%, with the core NIM narrowing by three basis points to 1.80% as loan spreads tightened in a competitive mortgage market.
Analysts at Citi noted that while management is focusing on shifting lending growth to business and institutional sectors, the challenge lies in funding that growth in a competitive environment. The market may question the sustainability of this growth, especially as rate cuts pose additional challenges and the replicating portfolio impacts the NIM.
Despite these challenges, Westpac reported low mortgage delinquencies and impairment charges, with repayments on home loans in Australia more than 90 days late declining to 0.86% as of the end of March from 1.12% six months earlier. The bank’s shares initially fell 3.8% in response to the earnings announcement.
This financial update comes shortly after the Australian Labor Party secured a historic second consecutive term, with housing costs being a central issue in the recent election. Miller expressed eagerness to collaborate with the government on various issues, such as expanding housing availability, ensuring sustainable access to cash, and enhancing national competitiveness.
Westpac declared an interim dividend of 76 Australian cents, up 1 cent from the previous year. The bank continues to navigate challenges in the market landscape and remains focused on addressing evolving economic conditions and regulatory developments.
(Reporting by Roshan Thomas and Shivangi Lahiri in Bengaluru; Editing by Marguerita Choy, Rod Nickel, and Sonali Paul)
