Peter King – Chief Executive Officer
“This has been a solid quarter in which we’ve grown the franchise and maintained a strong financial position. Our unaudited net profit was $1.5 billion. The impact of Notable Items, related solely to hedge accounting which will reverse over time, drove the 6% decline.
Excluding Notable Items net profit was $1.8 billion, in line with the second half 2023 average. Pre-provision profit grew 1% with both revenue and expenses rising 2%.
Operating momentum was positive with customer deposit growth of $7.9 billion and loan growth of $5.6 billion. This represents system growth of 1.1x in household deposits and 1.0x in Australian housing loans4.
Net interest margin (NIM) was well managed in light of lending and deposit headwinds, with NIM excluding
Notable Items declining 1 basis point to 1.93% and Core NIM declining 4bps to 1.80%.
I’m pleased with our efforts to strengthen the Westpac franchise. Our Consumer NPS5 has increased reflecting improved mortgage servicing capability and Westpac Institutional Bank’s rankings across key industry surveys are higher.
From a credit quality perspective, we saw a reduction in business stress while a rise in 90+ day mortgage delinquencies reflects the tougher economic environment. We remain focused on helping those customers facing high cost-of-living pressures and making difficult choices to manage household budgets.
These trends in credit quality saw impairment charges rise. The charge to average loans increased by 3 basis points to 10 basis points, although remains below the long run historical average.
We expect the economy to remain resilient, supported by low unemployment and healthy corporate sector balance sheets. The economic slowdown, combined with abating inflationary pressures, should provide scope for monetary policy to become less restrictive within the next year.
We continue to prioritise financial strength with capital, funding and liquidity well above regulatory minimums. Risk management remains a priority. Following the completion of 100% of CORE6 program activities, we have commenced the transition period which will continue throughout 2024.”
Operating trends
The NIM was 1.78% and comprised:
- Core NIM of 1.80%, down 4 basis points, reflecting prudent management in the context of ongoing mortgage competition. In addition, further deposit mix shift towards lower spread savings and term deposits was offset by higher earnings on capital and hedged deposits;
- Treasury and Markets income of 13 basis points, up 3 basis points; and
- Hedging items, that will reverse over time, which detracted 15 basis points.
Expenses were down 6% and excluding Notable Items were up 2%. The rise in expenses excluding Notable Items reflected higher amortisation expense and ongoing inflationary pressures. These outweighed benefits from the 2% reduction in FTE and ongoing Cost Reset actions.
Stressed assets reduced by 4 basis points in the quarter to 1.22% of total committed exposures, with the reduction in watchlist and substandard exposures more than offsetting the rise in 90+ day mortgage delinquencies.
Financial strength
The CET1 capital ratio was 12.3% as at 31 December 2023, compared to the target operating range of 11.0% to 11.5%. The 9 basis point decline in the quarter reflects the 2H23 dividend payment more than offsetting earnings for the quarter and the RWA reduction which was mainly related to IRRBB7.
The quarterly average liquidity coverage ratio of 133% and net stable funding ratio of 114% remain above regulatory minimums.
Wholesale funding is well progressed with more than $17 billion raised in the financial year to date, compared to the planned FY24 funding of $35-40 billion.
Credit impairment provisions were $5.1 billion as at 31 December 2023, $1.5 billion above expected losses of the base case economic scenario. The ratio of CAP to credit RWA was up 2 basis points to 1.37%.
