So far St George Bank has produced the result that stands out from the rest of the majors in this March 30 interim reporting season, even though Westpac was pretty upbeat about its numbers yesterday.
Westpac said first-half profit rose 12 per cent to a record $1.64 billion, thanks to boosting loans to business and keeping a tight hold on costs.
Like the ANZ and St.George, Westpac’s result was a record interim profit.
Nothing spectacular, solid double digit growth far in excess of inflation, with dividends also rising strongly. Westpac will pay an interim fully-franked dividend of 63c a share, up from 56c in 2006.
ANZ said a week ago that net earnings rose to $2.1 billion while St.George reported a record $572 million in net profits earlier this week. The National Australia Bank Ltd. announces its results next Thursday.
But only St George was confident enough to increase its guidance for the full year from the previous 10 per cent estimate to a range of 11 to 12 per cent, with the 10 per cent estimate for the 2008 reaffirmed as well.
The ANZ played down its second half prospects, maintaining its earlier forecast of 7 to 9 per cent, thanks to expectations of a rise in second half loan arrears without any compensating debt recoveries like there was at the end of the first half.
Westpac says it is expecting a strong second half.
The ability of Westpac CEO, David Morgan and his ANZ counterpart, John McFarlane to forecast any more confidently is restricted by the fact that both are retiring at the end of the year.
They wouldn’t want to be too strong in their forecasting for fear of undershooting and departing under a small cloud and nor would they want to tie their successor into a forecast for 2008.
Westpac said cash earnings increased 11 per cent to a record $1.678 billion, as revenue grew by 7.6 per cent to $4.91 billion, with costs up 4 per cent to $2.22 billion.
As a result the bank’s cost to income ratio fell (like the ANZ and St George) to 45.9c in the dollar from 46.8c. St George remains the best with its ratio just over 42c in the dollar.
Westpac chief executive, David Morgan said “This is a high quality result. We have once again achieved double digit earnings per share growth and excellent returns.
“This record result was driven by a good performance across Australian banking and an outstanding performance in our wealth management business.”
He said the bank’s loan growth was eight per cent for the six months.
Balance sheet growth was strong with loans up 17 per cent and deposits up 15 per cent from the same period last. Loans to business jumped 25 per cent to almost $84 billion, the best of the majors so far.
Dr Morgan said credit quality remained sound with loan losses moving towards more normal long-term levels.
But reflecting strong loan growth and higher delinquencies, impairment losses increased 25 per cent from a low base.
“We have maintained our risk disciplines and remain well provisioned,” he said.
The only trouble areas are the New Zealand and Pacific businesses which continued to face difficult trading environments.
“We are in the early stages of turning around our New Zealand business. The bank is facing a high currency, high interest rate regime which is very different to Australia.
“High (NZ) interest rates and a strong currency are expected to flow into some slowing in growth through the remainder of 2007,” the bank said.
“Additionally, a lower rate at which NZ dollar earnings are being translated back to Australian dollars will detract at least one percentage point in growth from 2007 full year group earnings.”
The bank said its NZ earnings fell three per cent to $221 million, due to increased delinquencies and higher loan impairment losses while the Pacific banking operations earnings declined by six per cent to $34 million, mostly due to political instability in the region (Fiji, Tonga and The Solomons).
Westpac’s business and consumer banking division posted cash earnings of $932 million for the first half, up 12 per cent from the same period last year, which was in line with system growth.
Business lending rose 14 per cent, mortgages by 12 per cent, cards by 16 per cent and deposits by 13 per cent.
Its institutional bank earnings also rose 12 per cent, to $281 million.
The BT Financial Group wealth management business increased its market share and posted cash earnings growth of 22 per cent to $201 million. Westpac says it wants to make acquisitions in this area.
Group cash earnings per share were 91 cents, 11 per cent above those for 2006.
Westpac shares closed down 34c at $27.20 after the usual ‘sell on the result’ reaction from punters who had bought into the stock during its six month run up.
