King: Steady first half progress, delivering on cost reset

James Thornhill
08:30am May 09 2022

Westpac chief executive Peter King discusses the bank’s first half 2022 performance.  (Josh Wall)  

Westpac chief executive officer Peter King said the bank had made steady progress in the first half of 2022, and was delivering on its strategic goals of fixing and simplifying the Group. 

“We’re managing through the low rate environment and making the changes required to become a simpler, stronger bank,” Mr King said, as he handed down first half cash earnings of $3.095 billion.

The bank’s cash earnings were up sharply compared to the prior half, buoyed by a material reduction in notable items. A decline in cash earnings over the year was mostly due to competitive pressures on net interest margins and returning to an impairment charge after having benefits last year. 

“We are tracking well on our strategic priorities,” Mr King said.

“From a perform perspective, we maintained our return on equity over the prior half. Our 10 per cent reduction in costs helped to offset a decline in revenue and an increase in impairments.

“The multi-year Customer Outcomes and Risk Excellence program is also delivering to plan and we resolved a number of significant regulatory matters. Our portfolio simplification saw two more businesses exited, with our focus now on the exit of the BT businesses,” he said.

 

Westpac chief financial officer Michael Rowland on the bank's first half result. (Josh Wall) 

As questions about potential stress in the Australian mortgage market intensified after the Reserve Bank of Australia raised the cash rate by a quarter percentage point last week – the first hike in over a decade – Mr King said he was confident most Westpac customers were well positioned. 

“We are moving into a different cycle in interest rates, but they've been very low, historically low, and when we assess mortgages we've been including an [interest rate] buffer of at least 2.5 per cent,” Mr King said. 

“There will be a little bit of increased stress, but we'll be ready for that if it happens.”

The economic outlook for 2022 was “pretty positive”, Mr King added, but uncertainties remain. 

“You've got low unemployment and increased activity because hopefully we're through the worst of the Covid period.” 

He said Westpac had a strong capital position and had added overlays to its credit provisions to deal with uncertainty from supply chain issues and the economic impact from the devastating floods that hit eastern Australia earlier this year.

Chief financial officer Michael Rowland said the bank remained on track to meet its target to reduce the cost base to $8 billion by 2024. 

“What we saw in this half was that the plans that we had put in place in prior years are now underway and are delivering,” Mr Rowland said.

The bank grew its Australian mortgage book in the owner-occupier segment over the half, but Mr King said there was still room for improvement on the investor side. Meanwhile, Mr Rowland said while the mortgage market would remain highly competitive, there were grounds for optimism that margin pressure is easing.

“As we see the economy coming out of Covid and economic activity being solid, we're starting to see interest rates rise. So that helps us from an overall economic perspective,” Mr Rowland said.

A strong result from the institutional bank was another feature of the first-half numbers, reporting a 3 per cent rise in cash earnings. The division was showing the benefits of a reset over the past 18 months, including a new team, which helped to drive an improved performance in markets. 

Digital transformation remained a key priority for the bank, Mr King said, with new features added to the banking app focused on improving security. 

The bank delivered shareholders a modest increase in its interim dividend to 61 cents, which, at 69 per cent, was in the middle of the bank’s medium term payout ratio of 65 to 75 per cent. “We're very focused on delivering improved returns to shareholders,” Mr Rowland said. 
 

James Thornhill

James Thornhill was appointed as editor of Westpac Wire in May 2022. Prior to joining the bank, he was a business and financial journalist with more than two decades of experience with international newswires. Most recently, he was a resources correspondent for Bloomberg, covering the mining and energy sectors, and previously reported on a broad range of topics from economics and politics to currency and bond markets. Originally from the UK, he’s had stints working in London, New York and Singapore, but is now happily settled in Sydney.

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