Westpac: First Half Cash Earnings Up 3%, Says House Price Growth To Moderate
Shares in Australian bank Westpac (WBC.AU) are trading 0.4% higher this morning after r evealing a 3% increase in first half cash earnings of AUD4.02 billion.
Photographer: Carla Gottgens/Bloomberg
The institutional bank was the star of the result, with cash earnings rising 34% year-on-year to AUD700 million thanks to a large number of transactions and and improved markets income. Improved credit quality lead to lower impairment charges.
The consumer bank, the core of the business, delivered a 5% year-on-year change in earnings to AUD1.5 billion, with good balance sheet growth (loans up 6% and deposits up 7%). However, margins were crimped by intense competition.
BT Financial Group reported an 11% year-on-year fall despite increased funds under management and funds under administration. Earnings were hit by higher general insurance claims following Cyclone Debbie and lower advice income.
Net interest margins fell 7 basis points from the same time last year given higher cost of funds related to competition for term deposits and the issuance and lengthening 0f wholesale funding.
Cash return on equity was 14% - at the end of the bank's 13% to 14% range.
Banks have come into sharpened focus amid concerns about a property bubble in leading markets like Sydney and Melbourne. Here's what the Reserve Bank of Australia had to say about housing after its monthly board meeting last week :
Prices have been rising briskly in some markets and declining in others. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recently announced supervisory measures should help address the risks associated with high and rising levels of indebtedness.
Westpac CEO Brian Hartzer said he was positive on the outlook for the Australian housing market but expected price growth to moderate:
We remain positive about the Australian housing market, although we expect price growth to moderate through 2017. 90+ day delinquencies remain low by historical measures and our home loan book continues to perform well with more than 70% of customers ahead on their repayments.
2017 financial system credit is expected to grow at around 5.5%. Housing credit growth is likely to ease a little as demand slows.
Here is a video analysis of Westpac's results from broker Commsec.
Westpac was named as one of eight conviction buys by Morgans last week. The broker says the bank is relatively low risk in terms of its loan book positioning and low reliance on treasury and markets income, it stands to benefit the most from re-pricing of investor home loans, and has a low risk of a dividend cut given its strong regulatory capital position.
Westpac shares are up 17% over the past year.