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RPT-UPDATE 3-Australia bank Westpac's profit growth disappoints, margins under pressure
November 6, 2017 / 5:51 AM / a month ago

RPT-UPDATE 3-Australia bank Westpac's profit growth disappoints, margins under pressure

(Repeats story, with no changes to text)

* Westpac annual cash profit A$8.06 bln vs A$8.12 bln street view

* Net interest margin slips

* CEO highlights tepid consumer-spending as risk

* Westpac shares drop, underperform broad market

By Paulina Duran

SYDNEY, Nov 6 (Reuters) - Westpac Banking Corp posted a lower than expected 3 percent rise in annual cash profit and a drop in profitability, with hesitant consumers and a tepid economy weighing on the growth prospects of Australia’s second biggest lender.

Australia’s ‘Big Four’ banks are still earning record profits led by modest lending growth and a focus on costs but they are now starting to feel the impact of cracks in the property market, weak retail sales, heightened competition and an increased regulatory burden.

Westpac reported on Monday a record cash profit of A$8.06 billion ($6.17 billion) for the year ended Sept. 30, up from A$7.82 billion a year ago. That narrowly missed the A$8.12 billion average estimate of seven analysts polled by Reuters.

Cash profit, a measure that excludes one-offs and non-cash accounting items, is closely watched by investors.

Westpac’s net interest margin, a barometer of profitability, was down 4 basis points to 2.06 percent, as competition eroded the benefits of an industry-wide move in July to increase mortgage rates.

The modest rise in cash profit and the weaker net interest margin at Westpac mirrored those at rival National Australia Bank Ltd which released its financial results last week.

“The positive signs of resources services and infrastructure will support growth ... (but) with household incomes flat and rising energy costs it’s hard to see consumer spending rising strongly,” Westpac Chief Executive Brian Hartzer told analysts on a call after the results on Monday.

Westpac shares were down 2.4 percent in early afternoon trading in a broader market that was 0.16 percent lower.

“Margins in the second half were not as good as they should have been,” said Omkar Joshi, portfolio manager at Regal Funds Management, which owns shares of Westpac.

“They are doing what they can in a tough environment, but there’s nothing that looks too great in the outlook.”

CHALLENGES AHEAD

Ernst & Young estimates the combined net interest margin reported across the ‘Big Four’ banks was 4.5 basis points lower in the last financial year, as asset repricing was offset by competition, funding costs and the impact of a new government-imposed bank levy.

The Big Four banks have delivered an average 13.94 percent return on equity this reporting season, according to Ernst & Young.

But they are experiencing the most difficult trading environment in years, with credit ratings agency Fitch warning on Monday their earnings in the current fiscal year would be under pressure, likely dragged by low revenue growth and higher impairment charges.

Westpac’s stressed assets are now at a near five-year low of 1.05 percent, and any lift in impairments will further erode profits.

UBS analysts said a 9 percent fall in non-interest income was worrying, noting that the bank’s “growth is predicated on reduced funding costs and provision charges remaining very low”.

Westpac’s common equity Tier-1 capital ratio rose to 10.6 percent at end-September from 9.5 percent a year ago.

The bank announced a final dividend of A$0.94 per share, the same as last year. ($1 = 1.3062 Australian dollars) (Reporting by Paulina Duran in Sydney; Additional reporting by Jonathan Barrett in Sydney and Rushil Dutta in Bengaluru; Editing by Peter Cooney and Muralikumar Anantharaman)

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