King: Solid result, well set for tougher economic outlook

Westpac chief executive officer Peter King said the bank was well set to navigate a tougher economic environment and had built positive momentum heading into the new year. 

“I'm very happy with the solid result this year,” Mr King said, handing down full year cash earnings of $5.3 billion, 1 per cent lower than the previous year, alongside chief financial officer Michael Rowland.

“We've really built liquidity and capital buffers and the credit portfolio is in very good shape, so we feel like the bank is in a solid position to manage through a tougher environment and help customers.”

The bank’s full year bottom line included $1.3bn in pre-announced notable items – mainly reflecting the sale of its Australian life insurance business – although notables were lower than the prior year. The result also included a turnaround in impairments from a benefit last year to a charge this year.

Removing the impact of notables, the bank’s second half core earnings jumped 12 per cent and net interest income was up 7 per cent.

“We had particularly strong growth in the second half, with loan growth, expanding margin and costs down,” Mr King told Westpac Wire.

The bank’s mortgage book is growing in line with major bank system, business lending is up and results in the institutional bank were strong with loans up 26 per cent year-on-year. 

“All in all, core earnings were a better result this year,” he said.

The bank’s closely-watched net interest margin remained below historical levels coming in at 1.87 per cent for the full year, although the measure jumped 5 basis points in the second half, benefiting from increasing interest rates that had come off historical lows.

The bank nudged up its final fully franked dividend from the first half to 64 cents per share, taking the annual payout for the year to 125 cents, up 6 per cent on the prior year. 

Mr King said Westpac was now simpler and stronger following the good progress on the “fix, simplify, perform” priorities he set just over two years ago. 

“We've sold the majority of the businesses that we want to sell, and banking simplification has been a big focus for us,” he said.

“We’re investing in the right places, such as the launch of our digital mortgage and new personal finance management tools in the Westpac app, and the work we're doing in business lending is coming to the fore now."

He said the bank had also made steady progress 18 months into its three-year program to improve risk culture, governance and accountability, as approved by regulator APRA in April 2021. This was also confirmed today in independent consultancy Promontory Australia’s latest quarterly review of the program, which noted the bank’s progress reflected significant steps toward transformation which must now be embedded.

“We're entering a really important phase of embedding the changes which is changing how we run the business sustainably,” Mr King said.

Despite the challenges of steeply rising interest rates and inflation, Westpac reported a decline in stressed assets and mortgage delinquencies, although Mr King said he was keeping a sharp eye on this, particularly as many mortgage customers roll off the fixed interest periods locked in at historically low rates over the past couple of years. 

Looking forward, Mr King said inflation and the cash rate had further to rise in the short term, and unemployment would begin to tick up, while GDP was expected to slow in 2023. 

“That will be hard for people, and it’s important to acknowledge the challenges ahead as customers navigate the tougher environment,” he said.

“Having said that, the fundamentals in this country are very good, we're lucky geographically where we are, and I'd rather be in Australia than any other country.” 

For full disclosure of the bank’s full year results, visit the FY22 results hub.