Westpac’s yearly profit declines as home loans encounter rivalry from competitors.

Westpac Bank’s Annual Results: A Mixed Bag

On November 3, Australia’s Westpac Bank reported its annual profit, revealing that loan volumes dipped slightly to A$7 billion (about $4.55 billion). This was unexpected, particularly as the bank navigates stiff competition from larger players in the home lending market.

The bank, which is the third-largest by market capitalization in Australia, anticipates a slowdown in credit growth until 2025, projecting a stabilization in 2026. Rising interest rates and reduced consumer spending are cooling both the economy and housing demand. It’s a bit concerning, isn’t it?

Despite these challenges, strong employment figures and accumulated savings are helping to keep arrears and defaults in check. For the fiscal year ending September 30, Westpac reported a net profit after tax of A$6.99 billion, a slight decline from A$7.11 billion the previous year, yet still above analysts’ expectations, which hovered around A$6.83 billion.

Interestingly, the bank’s net interest margin—a key indicator of financial health—slipped just one basis point to 1.94%. This drop reflects ongoing competition in loans and deposits. In early trading on Monday, Westpac’s shares fell by approximately 1.2%, in contrast to the broader S&P/Australian Stock Exchange 200 Index, which saw a 0.2% decline.

Westpac’s CEO, Anthony Miller, mentioned that while the economy shows some improvement, the chances of future interest rate cuts appear quite slim, especially given the rise in core inflation noted in the September quarter. It’s a complex situation—economic recovery isn’t straightforward.

Miller also pointed out that global risks remain, largely due to trade and geopolitical tensions. The mortgage market is fierce in Australia, with recent growth rates falling behind those of its largest rival banks.

Currently, Westpac holds A$497 billion in home loans, marking a 5% increase from last year. However, regulatory data has shown that competitors like Commonwealth Bank and ANZ Group are expanding their mortgage lending faster than Westpac’s growth. It raises the question: Will they catch up?

On a positive note, the mortgage delinquency rate—those 90 days or more overdue—decreased to 0.83%, down from 1.05% last year. It appears that fewer borrowers are falling behind on payments, which is good news. Also, the percentage of loans showing signs of stress has slightly decreased to 1.36%.

Operating expenses rose by 9% to A$11.9 billion, with significant contributions from restructuring costs, tech investments, and wage increases due to new hiring. The bank also announced a final dividend of 77 Australian cents per share, edging up from 76 cents last year, resulting in an annual dividend of A$1.53.

In a separate announcement, Westpac disclosed an agreement to sell its A$21.4 billion RAMS mortgage portfolio to a consortium that includes Pepper Money and KKR. This move could signify a strategic shift for the bank.