Bloomberg News

Westpac Profit Rises After Lending Growth Outpaces Costs

May 02, 2012

Gail Kelly, chief executive officer of Westpac Banking Corp. Photographer: Sergio Dionisio/Bloomberg

Gail Kelly, chief executive officer of Westpac Banking Corp. Photographer: Sergio Dionisio/Bloomberg

Westpac Banking Corp. (WBC), Australia’s second-biggest bank, said first-half profit rose as lending growth outpaced an increase in expenses.

Cash earnings in the six months ended March 31 gained 1 percent to A$3.20 billion ($3.3 billion) from A$3.17 billion a year earlier, the Sydney-based bank said in a statement today. Net income, which matched analysts’ estimates, fell 25 percent to A$2.97 billion as the prior period was boosted by tax benefits from buying St George Bank.

Europe’s debt crisis has made it more expensive for Australia’s biggest banks to raise funds overseas, squeezing margins as demand for credit and house sales dwindle. Westpac, led by Chief Executive Officer Gail Kelly, today forecast modest increases in lending and “intense” competition for customer deposits, putting further pressure on profitability.

“Businesses and consumers remain cautious,” the bank said in today’s statement. “Funding costs are expected to remain elevated.”

Westpac shares have gained 13 percent this year, outpacing the 9.4 percent increase for the benchmark S&P/ASX 200 index.

Narrower Margin

Lending increased 5 percent in the six-month period, more than the 4 percent growth in expenses, Westpac said. The bank’s net interest margin, a measure of lending profitability, fell 4 basis points to 2.17 percent from the year-earlier period, mostly because of higher interest rates paid to depositors.

“Margins will continue to be impacted” by higher funding costs in the second half, Westpac said in a presentation to investors.

Even with the smaller margins, Westpac’s net interest income advanced 6 percent as loans and deposits swelled. Non- interest income rose 6 percent on higher trading earnings.

Australia & New Zealand Banking Group Ltd. (ANZ), Australia’s third-largest bank, yesterday reported a larger-than-expected decline in lending profitability in the six months ended March 31 as it paid more for deposits and overseas funds. Foreign income drove a 10 percent increase in earnings, while in Australia, there is “persistently lower demand for credit,” CEO Michael Smith said.

National Australia Bank Ltd. (NAB), the fourth-largest bank in the country, on Monday reported a 16 percent decline in net income in the six months ended March 31 as it booked charges to shrink its U.K. business. The bank will report details of its earnings, including lending margins, on May 10.

Housing Slows

Sales of new homes in Australia fell in March to a record low, according to the Canberra-based Housing Industry Association. House prices declined in the three months through March, extending the longest losing streak in at least a decade, the Australian Bureau of Statistics said this week.

Australia’s central bank on May 1 cut benchmark borrowing costs by a larger-than-expected 50 basis points to spur economic growth, saying Europe’s debt crisis may shock the market for some time.

The crisis is pushing up fundraising costs for Australia’s banks, even as the Reserve Bank of Australia cut benchmark borrowing costs. The divergence is forcing lenders to withhold some of the central bank’s rate reductions to protect lending margins.

National Australia Bank yesterday kept more than a third of the RBA cut, trimming its variable mortgage rate by 32 basis points. Commonwealth Bank of Australia (CBA) said today it will cut its variable mortgage rate by 40 basis points.

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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