Westpac posted a flat full year cash profit of $7.822 billion, within analyst expectations, as bad loans weighed on the bank.
Statutory net profit was down 7% to $7.445 billion. Revenue dropped 3% to $20.985 billion.
Bad loans rose 49% to $1.124 billion. The bank says cash earnings growth was little changed due to this higher impairment charge, mostly for a small number of larger companies in the first half of the year.
The impairments dragged down Westpac’s institutional cash earnings by $245 million to $1.098 billion. The bank exposures include troubled law firm Slater and Gordon, and steelmaker Arrium.
But the payout to shareholders was up slightly. A final dividend of 94 cents was declared, unchanged from the interim 2016 dividend, taking the full year payout to 188 cents, 1 cent higher than the previous year.
CEO Brian Hartzer says Westpac’s consistent focus on Australia and New Zealand means its high quality portfolio is strongly positioned.
He says housing credit growth is likely to ease a little as price growth slows. Business credit growth is likely to improve moderately as it rebounds off a low base.
“The financial services industry continues to experience significant regulatory change,” he says.
Results by division:
The bank’s net interest income increased 6% to $881 million with total loan growth of 6% and customer deposit growth of 9%.
Net interest margins increased 1 basis point to 2.10%, mainly due to repricing of mortgages.
However, income from the wealth management and insurance business fell 14% to $2.224 billion.
Hartzer wound back the current 15% ROE (return on equity) target for the bank, saying it was no longer realistic.
The new target is between 13% and 14%.
“The (balance sheet) improvements we’ve made further reinforce that Westpac’s balance sheet remains unquestionably strong,” he says.
“However, the additional shares issued at the start of the year have lowered the group’s earnings per share and reduced our return on equity.”
He cited a continuing low interest rate environment, evolving regulations for capital and liquidity, and higher regulatory and compliance costs as reasons behind the weakening returns.
The key results for the 2016 financial year to September:
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