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RESULTS: Difficult environment, provisioning ‘prudent’

08:10am May 04 2020

Westpac CEO Peter King discusses the bank's first-half results. (Josh Wall)

Westpac Chief Executive Peter King says the board will continue to assess options for its interim dividend after deferring the decision amid heightened uncertainty stemming from the COVID-19 crisis, as he kicked off a strategic review of several businesses to speed up the simplification of the bank. 

Handing down his first result as CEO, Mr King labelled the first half numbers the most difficult for the bank in “many years” and said that in light of the changed economic outlook, Westpac had increased its provisions for expected credit losses to $5.8 billion, which includes approximately $1.6bn of additional impairment charges predominantly related to COVID-19 impacts. 

He added that while 2020 would be a challenging year as unemployment spiked, the bank was well placed to continue supporting customers, revealing 105,000 Australian mortgage accounts worth $39bn had been placed on hold, along with 31,000 Australian business loans.

“It is an extraordinary time. The bank is dealing with the twin impacts of COVID-19 and some of our own issues,” Mr King told Westpac Wire

For the six months to March 31, cash earnings fell 70 percent to $993 million while statutory net profit declined 62 percent to $1.2bn. Amid heightened focus on dividends across all listed companies, the bank’s closely-watched common equity tier one capital ratio came in at 10.8 percent – above the 10.5 percent “unquestionably strong” benchmark. But given the “uncertain economic and operating conditions and … APRA’s consistent guidance on dividends”, the bank’s board took the “difficult” decision to defer the decision on its interim dividend. 

“Dividends is an important decision every six months and the board has decided to delay the decision at this point. We will continue to look at that through the half and give you an update at a future point,” he told Westpac Wire

With the economy and banking environment expected to evolve as the nation navigates a sharp economic contraction, Mr King said the bank needed to simplify and focus on its Australian and New Zealand banking businesses, and it had several businesses without “sufficient scale or where the returns are insufficient for the risk”. The businesses – wealth platforms, superannuation and retirement products, investments, general and life insurance, auto finance and Westpac Pacific – would be moved into a new Specialist Businesses division headed by former Westpac senior executive Jason Yetton, who is re-joining the bank.

“These are good businesses with strong franchises and will benefit from being in their own division under the leadership of Jason who will bring his considerable energy and skills to the role. Over the coming months we will conduct a detailed strategic review on the best options for these businesses,” Mr King said. 

“This will include considering whether they would ultimately be more successful under different ownership.”

For a transcript of Mr King’s Wire interview, click here (PDF 105KB).

Michael has been a journalist for more than 20 years. He started his career at The Australian newspaper before moving into television. Following stints in Los Angeles and New York he joined the Nine Network reporting for National Nine News and A Current Affair. Next, Michael moved to Sky News where he anchored prime-time bulletins as well as hosting major live events. Michael served as media adviser to Joe Hockey during his time as Federal Treasurer, and was a senior media advisor at Westpac between 2019 and 2021.

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