Westpac (WBC) has reported a flat profit in the six months to the end of March, but lifted interim payout to keep shareholders happy.
The cash profit of $3.77 billion confirmed the fears last week in the market that the interim reporting season would be disappointing.
However Westpac pointed out that a new method of valuing financial derivatives clipped earnings by 2%.
Westpac said its first-half cash earnings were unchanged from a year ago at $3.77 billion. Analysts had forecast a rise of 3% to $3.88 billion.
Interim dividend was lifted to 93c a share, from the 90 cents a share paid for the March 2014 half year. The market had been looking for 94 cents a share in the expectation of the higher result.
Net interest margin was unchanged at 2.01% (or 2.01 cents in every dollar).
The cost to income ratio worsened slightly to 42.5% from 41.2% – not much of an increase but something that will cause analysts to take a second look.
The bank was able to maintain earnings by another fall in its impaired assets. Impaired assets as a percentage of gross loans fell 0.16 basis points to 0.35%.
"The Group’s operating businesses continued to perform well, particularly the Group’s retail and business banking divisions,” the bank said in this morning’s release.
"However, the result was affected by a lower Treasury contribution and a $85 million (post-tax) charge following the introduction of the previously announced methodology changes to derivative valuations (derivative adjustments).
"Prior to the derivative adjustments, cash earnings were up 2%, compared to the prior corresponding period,” directors pointed out.
Westpac Chief Executive Officer, Brian Hartzer, said: “Our operating divisions, particularly retail and business banking, have continued to perform well during the period. However, the headline result was impacted by derivative adjustments in our WIB business and a lower Treasury result.
“Our primary goal is to continue to build the value of our franchise, and the drivers of value are heading in the right direction. We have grown our customer base and continued to improve customer service, while maintaining our disciplined approach to growth and margin management.
“At the same time we have delivered $230 million in efficiency gains over the year and further improved the quality of the portfolio through a reduction in stressed assets.
“In our retail and business banking divisions we had solid loan and deposit growth, along with well managed margins."
Mr Hartzer said he was positive about the growth outlook for the Australian economy, with low interest rates, a lower Australian dollar and support from the housing sector.
“While I’m positive about the outlook, the economy is currently in transition and this means that we expect growth to be uneven across different industry sectors and geographies.
“Areas like housing, infrastructure, and agriculture will do relatively well, while other areas such as mining and resource-driven regions and adjacent service providers will find it tough.
“For Australian banks, this means that credit growth will be modest but positive with housing growing faster than business. Asset quality should remain strong, supported by low interest rates and healthy business balance sheets.,” he said. This also means that banking competition will remain intense, including from new entrants,” he said.
Westpac Half Year Result 2015
