Westpac's profit climbs 3% thanks to lower bad debts

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Westpac Banking Corp posted a 3% increase in first half cash profit on lower bad debt charges and a rise in fees and commissions.

Cash profit, which included one-time items, was $4.02 billion, up from $3.9 billion a year earlier, the company said. That met the consensus expectation of analysts.

Westpac’s results announced concludes the major Australian bank earnings, which revealed pressure on net interest margins and revenue growth while asset quality remained sound. Investors are also keeping an close eye on the bank’s mortgage portfolio amid a regulatory crackdown on lending and soaring home prices.

“The outlook for Australia remains positive overall, with GDP growth expected to be slightly above trend at 3% in 2017,” Westpac CEO Brian Hartzer said. “However, growth will remain mixed across the country.”

It declared an interim dividend of 94 cents a share, unchanged from a year earlier.

The earnings growth was led by the institutional banking business, which gained from higher markets income, lower impairment charges and costs. Mortgages grew by 6%.

Net interest margins, a key measure of profitability, fell 7 basis points from a year earlier to 2.07% largely due to deposit competition.

The charge for bad debts fell 26% to $493 million, it said.

Expenses climbed 1% while revenue climbed at twice that rate.

Common equity tier 1 ratio, a measure of a bank’s ability to absorb future losses, rose to 10% from 9.5% six months earlier, Westpac said.

Asset quality remains sound Westpac said with mortgage arrears of 90 days or more “low by historical measures” and about 70% of customers ahead on their repayments.

“We remain positive about the Australian housing market, although we expect price growth to moderate through
2017,” CEO Hartzer said.

Australia’s central bank has warned of financial stability risk from rapid rise in household debt that has fueled the housing boom while in March the banking regulator tightened lending norms to protect the banks an depositors from any housing implosion.

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