Westpac records record cash profits of $6.6 billion but sluggish mortgage lending amid higher funding costs

The last of the big four banks, Westpac, has reported its 2012 annual results, with the country’s second-biggest mortgage lender recording record cash earnings of $6.6 billion for the year ending September 30.

However, it managed just 4% growth in mortgage lending over the group (3% within the Westpac brand) over the course of the financial year with funding costs rising as it shifts its funding mix towards a greater reliance on customer deposits.

For their respective financial years NAB reported 9.9% annual growth in mortgage lending, ANZ managed mortgage growth of 7% and Commonwealth Bank, mortgage growth of 4%.

System growth in mortgage lending for the year to September has been 4.7%, according to RBA financial aggregate figures.

The $6.6 billion cash profit figure was Westpac’s third consecutive record result – cash profit excludes one-off financial items.

Statutory net profit, which does include one-off financial items, fell 15% to $5.97 billion, reflecting a previous year benefit of a one-off St.George tax consolidation.

Westpac maintained its 26% share of the national home loan market growing its total mortgage book by $11.7 billion from $304.6 billion to $316.3 billion.

However, line-of-credit lending (used primarily by investors) declined from $35 billion to $32.6 billion.

Westpac Group CEO Gail Kelly called the bank’s performance a “strong result in a lower growth economic environment”.

The bank reported its net interest margin down five basis points for the year at 2.17%, attributing this decline to higher funding costs, mostly from the increased benefit customers received from higher deposit interest rates relative to market rates.

“Strengthening our balance sheet and improving our funding profile has been a key area of focus in recent years," says Kelly. 

"At our half year results, I stressed that a priority was growing deposits so I am pleased that our total customer deposits grew 12% or $38 billion this year, more than funding our growth in loans. Combined with a reduction in short-term wholesale debt, this has materially improved our funding mix."

 Kelly says a highlight of the result was the strong performance of the new Australian Financial Services division (AFS), which includes the Australian retail banking, business banking and wealth operations, where cash earnings increased by 14% to $2.1 billion as deposits and loans grew.

Among the subsidiary businesses, St George’s earnings flat compared to the previous year, at $1.2 billion.

Westpac says all its brands (the others being BankSA; Bank of Melbourne; and franchised mortgage lender RAMS) “contributed to the good momentum”.

The bank declared a record fully franked final dividend of 84 cents per share, up 2 cents, or 2% over first half 2012.

Total dividends for the year were 166 cents, up 6% over the prior year, and reflected a pay-out ratio of 77%.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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