Westpac has held interim dividend at 94 cents a share despite a 22% slump in cash earnings for the six months to March.
The bank – the last of the big three reporting with a March 31 interim balance date, said revenue fell 10% to $9.8 billion in the six month period.
Cash earnings ended up at $3.296 billion, down 22% from a year ago.
The main reason for the slide was the cost of customer remediation in the wake of the banking and finance royal commission.
Westpac said in a statement on Monday morning that it had provisioned $1.445 billion pre-tax in total over the past three years to work on its customer remediation programs, including $1.249 billion for customer refunds. $896 million pre-tax in provisions were made this latest half ($617 million post-tax).
“We are centralising oversight of all remediation programs and have more than 400 employees working directly on remediation projects to make refunds to customers as quickly as possible. Over the past 18 months, we have repaid around $200 million to customers and we expect to make good progress this year in resolving key issues,” CEO Brian Hartzer said in the statement
“This is a disappointing result reflecting weaker business conditions and the bank dealing decisively with outstanding issues, including remediation and resetting our wealth strategy,” he said.
“The past six months has been a turning point for the bank. We are proactively addressing legacy issues while improving our products and services to ensure they deliver the right customer outcomes. We’re exiting personal financial advice to focus on the parts of our wealth business where we have a competitive advantage, and we are delivering significant cost savings by simplifying our business.
“Despite the challenges of this transition period, we have managed our margins well this half while we navigate a very competitive, low-growth environment.”
Mr. Hartzer said productivity remains a top priority, with around $146 million in cost savings delivered over the half. With further cost initiatives underway, the bank is on track to deliver its target of $400 million in productivity savings over the full year. We have reduced full-time equivalent staff by 788 this half, and expenses excluding major remediation and restructuring items were down 3%.
“The result confirms the strength of our balance sheet. Our 10.64% common equity Tier 1 capital ratio remained strong in a low growth environment, allowing us to absorb the significant impact of customer remediation provisions and the costs of our wealth reset. Meanwhile, our liquidity and funding metrics are above regulatory requirements.
“The credit quality of our loan book is sound, with the proportion of stressed exposures up one basis point on the year. Impairments remain at cyclical lows and 69% of Australian mortgage customers are ahead on their repayments.”
Westpac said its net interest margin fell 12 points to 2.12% in the latest half (still higher than the NAB and ANZ) because of the provisions for customer refunds and higher short term funding costs.”
And Mr. Hartzer says Westpac doesn’t see much chance of an improvement in the sluggish economic conditions.
He said the Australian economy will remain subdued with GDP growth this year expected to hold at around 2.2% and consumers were being more cautious in the face of flat wages growth and a continuing soft housing market.
“The economy will continue to be supported by strong government investment and exports, in both resources and services. Employment growth is likely to slow while inflation is likely to remain low.
“The uncertain international backdrop is weighing on business investment decisions. Chinese authorities are addressing last year’s sharp slowdown while markets are cautious about the outlook for the US. Europe’s economy remains soft.
“House prices are likely to remain soft and home building is set to reduce through 2019 and into 2020.
“We expect system housing credit growth to slow to 3% in the current bank year and fall further next year to 2.5%. That would imply total credit growth slowing to 3% this year and 2.8% next year,” mr Hartzer said.
