(Adds net interest margin comparison with expectations, share
close)
By Byron Kaye and Roushni Nair
May 8 (Reuters) - Australia's Westpac Banking Corp on Monday threw out a cost-cutting target citing
inflation and flagged thinner profit margins going ahead, but
investors pushed its shares higher after it handily beat
expectations for first-half profit.
CEO Peter King said inflation was pushing up overheads as
the 206-year-old bank abandoned a target in place since 2021 to
bring annual costs down to A$8 billion by 2024 and which had
been subsequently increased to A$8.6 billion.
"We're going to see services inflation pretty sticky," King
said on a call with analysts and media, noting that the employer
of 38,500 people had raised wages 4% during the period, more
than Australian payrises of recent years which have tracked
inflation below 3%.
"In terms of costs, they're not going to reduce," King
added.
Westpac also joined local rivals ANZ Group and
National Australia Bank as well as Singapore's DBS
Group in warning about the outlook for net interest
margins (NIMs) as interest rate cycles near peaks.
Australia's No. 2 mortgage provider said NIM - interest
earned from loans minus interest paid for deposit accounts -
inched up 0.05% to 1.96% for the six months to March.
But that was below an average of 2.01% from analysts'
forecasts compiled by Visible Alpha, and the bank warned the
figure would likely narrow in the second half as the cost of
wholesale borrowing increased.
The first half saw Westpac's income leap 22% from the
same period a year earlier to A$4 billion ($2.7 billion), its
best half-year result since 2018, helped by higher interest
rates.
That compares with a consensus estimate of A$3.8 billion
published by Visible Alpha.
Westpac shares closed 2% higher, ahead of a broader market
advance of 0.8%, as the market cheered the
better-than-expected profit.
"Overall, the result was likely better than feared," Jarden
analysts said in a client note, but they added that dropping the
cost-cutting target "does suggest some additional downside for
earnings."
Costs for Westpac came to A$5 billion for the half, down
from A$5.2 billion a year earlier. In prior years, the bank's
costs for the first and second half of a year have been similar.
The bank now plans to publish its cost-to-income ratio to
illustrate its performance in comparison to competitors.
The results highlight how the market for mortgages, the
bedrock of Australian retail bank earnings until recently, has
become so tough that most large lenders have said they will
focus on other business to lift profit.
Westpac plans to redirect resources to institutional banking
and to financing the transition from fossil fuels to renewable
energy, King said, without giving specifics.
Westpac declared an interim dividend of 70 Australian cents
per share, up from 61 Australian cents last year.
($1 = 1.4810 Australian dollars)
(Reporting by Byron Kaye in Sydney and Roushni Nair and Upasana
Singh in Bengaluru; Editing by Sumeet Chatterjee and Edwina
Gibbs)
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.