Here's how the new bank levy has cut into Westpac's results

Circus Oz performers. William West/AFP/Getty Images

Annual results released by Westpac today reveal for the first time the actual impact on the bank of the federal government’s new levy.

The tax introduced in July cost the bank $95 million, equivalent to two cents a share, over just three months to September.

The bank decided to pay the levy out of retained earnings rather than cut dividends.

“The board (of directors) considered a range of factors including the impact of the bank Levy in determining the dividend,” the bank said when releasing its results showing a 3% rise in full year cash profit to $8.06 billion.

The bank declared a fully franked dividend of 94 cents a share, unchanged from the year before.

The federal government in the May budget introduced a levy on Australia‚Äôs five largest banks — Commonwealth, Westpac ANZ, NAB and Macquarie — as a way of helping repair the budget deficit.

The 6 basis point levy is applied to the bank’s liabilities. Previously the bank reported the levy would cost about $370 million over a full year.

At $95 million for three months, the levy would come to $380 million, very close to the original estimate.

In the annual result today, Westpac reported the levy as an interest expense, reducing net interest income in the second half and over the year, as this chart shows:

Source: Westpac

The levy also impacted a number of performance metrics, including reducing margins by 2 basis points in the second half and by 1 basis point for full year.

The expense to income ratio increased by 37 basis points in the second half and by 19 basis points for the year.

Return on equity fell by 22 basis points in the second half and 11 basis points for the year.

The impact on cash earnings:

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