Westpac attributes minor decline in first quarter profit to accounting rules

Company News

by Glenn Dyer

Westpac Banking Corp (ASX:WBC) has attributed a slight decrease in its unaudited first-quarter net profit to accounting rules governing financial hedges. The country’s second-largest bank stated that while these hedges will reverse over time, their adjustment impacted the first-quarter figures, resulting in a lower performance compared to the preceding six-month quarterly average.

The bank reported an unaudited net profit of $1.5 billion for the three months ending December 31, marking a 6% decrease from the prior six months' quarterly average, contrasting with market estimates around $1.65 billion. Notably, Westpac does not pay quarterly dividends.

CEO Peter King highlighted in Monday’s statement, "This quarter has been solid, wherein we've expanded the franchise and maintained a robust financial position. Our unaudited net profit stood at $1.5 billion. The impact of Notable Items, solely related to hedge accounting, which will reverse over time, led to the 6% decline."

Excluding notable items, Westpac reported a net profit of $1.8 billion, consistent with the second-half 2023 average. Pre-provision profit demonstrated a 1% increase, with both revenue and expenses rising by 2%.

"Operating momentum remained positive, with customer deposit growth of $7.9 billion and loan growth of $5.6 billion," the bank stated. Additionally, it noted that its net interest margin (NIM), a crucial metric to analysts, was well managed despite lending and deposit headwinds.

King addressed the bank's credit quality, stating, "We observed a reduction in business stress, while a rise in 90+ day mortgage delinquencies reflects the challenging economic environment."

Westpac anticipates economic resilience supported by low unemployment and healthy corporate sector balance sheets. King forecasted, "The economic slowdown, coupled with easing inflationary pressures, should provide room for monetary policy to become less restrictive within the next year."

Regarding credit impairment provisions, Westpac reported $5.1 billion as of December 31, 2023, exceeding expected losses of the base case economic scenario by $1.5 billion. The bank's credit impairment provisions ratio (CAP to credit RWA) increased by 2 basis points to 1.37%.

Lastly, Westpac revealed that it had completed 31.8% of the $1.5 billion on-market share buyback announced in November 2023.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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