Westpac chief executive officer Brian Hartzer has called for greater policy certainty, arguing businesses were holding back investments despite a broadly positive outlook for the economy and a rare boost from synchronised global growth.
As Westpac today reported a 3 per cent rise in cash profit, Mr Hartzer said Australia’s outlook remained “positive overall” even though growth was mixed across the country, industries were facing digital upheaval and house price appreciation may moderate. Economic growth was picking up around the world across most major markets, which Mr Hartzer noted was “something we haven't seen for a while”.
“In the US, in France, and in other markets around the world governments are cutting taxes, cutting red tape, and investing in infrastructure. It's a good reminder that policy certainty is a great spur to business investment,” he said.
“Business in Australia is ready to invest, however many of our customers are holding back because of policy uncertainty. Whether it's on energy policy, transport infrastructure, or fixing up the tax arrangements between the states, Governments at all levels need to come together with business for a common purpose to provide the certainty that's needed to drive confidence.”
Business investment has been muted since the global financial crisis amid mixed confidence, credit growth in the single digits and even periods of contraction, according to Reserve Bank data. In the past year, Westpac’s business bank grew assets 3 per cent, albeit faster growth of 6 per cent in its targeted area of small business. Home loans increased 6 per cent, just below the market’s overall “system” growth rate as the bank balanced growth and returns while meeting new macro-prudential regulatory requirements.
“We achieved the required macro-prudential targets for home lending,” Mr Hartzer said, referring to the banking regulator’s requirement that interest only mortgage lending was below 30 per cent of new flows. “The credit quality of our loan portfolio is in great shape with stressed assets reducing during the year.”
In the year to September 30, Westpac’s cash profit grew 3 per cent to $8.06 billion. Net profit increased 7 per cent to $7.99bn. The result was assisted by keeping cost growth to just 2 per cent and a decline in bad debts, but weighed by the introduction of the government’s bank levy and a $118m after tax provision for payments to customers as part of the bank’s “getting it right, putting it right” program to fix issues, such as refunds for product discounts that weren’t automatically received.
The final dividend was held steady at 94 cents per share, fully franked, after strong capital generation. The group’s common equity tier one ratio rose 107 basis points to 10.6 per cent, above the regulator’s newly flagged requirement of 10.5 per cent by 2020.
Mr Hartzer said despite some challenges, the bank was in good shape, achieving one million new customers since 2015 and increasing customer satisfaction levels as flagged. Cost growth and return on equity of 2 per cent and 13.8 per cent, respectively, were within targeted ranges, however the goal of lowering the cost to income ratio below 40 per cent would take more time, Mr Hartzer added.
“We have a strong customer franchise which continues to grow, we are taking advantage of the opportunities created by a digital world, and we are well-positioned in the faster growing parts of our economy. These factors, plus a highly-engaged culture that continues to attract great people, gives me confidence about Westpac’s outlook and our ability to outperform over the long term,” he said.
By Michael Bennet
Editor, Westpac Wire