Westpac lifts profit and dividend, accelerates tech transformation

James Thornhill
07:45am November 05 2023

Westpac has reported a strong rise in net profit and an increased dividend as it hands down its full year result for 2023.

CEO Peter King said the result positions the bank to grow its business while helping customers navigate tighter economic conditions.

“Over the past year we’ve further strengthened the bank, improved our financial performance and continued to support customers through a rising interest rate environment,” King said.

“This result is built on the back of growth in key markets including deposits, mortgages and institutional banking.”

Westpac also announced a $1.5 billion share buyback, reflecting what King described as the strongest balance sheet position he’d seen over his 29-year career at Westpac, with the CET1 capital ratio increasing to 12.4 per cent.

Annual net profit of $7.195 billion was up 26 per cent on the previous year, while return on equity was 10.1 per cent, up 199 basis points. The total dividend for FY23 was 142 cents, up from 125 cents in FY22.

The result comes after a period of transformation at Westpac, where a portfolio simplification program has been completed with the exit of ten businesses. 

King said the bank would now move to simplify the technology stack across the bank, streamlining customer channels, origination and product systems. 

The program will “lay the foundations of the Westpac of the future” and aims to improve service for customers, grow the business in line with system, deliver a cost to income ratio closer to peers and remove legacy systems and duplication.

“Westpac’s digital-first focus is showing results,” King said.

“Our app is the number one banking app in Australia and our improved digital services are helping us retain customers, with recent results seeing 90 per cent of those rolling off fixed rates choosing to stay with Westpac.”

Economic outlook

King said 2023 had been a challenging year for households, with many adjusting their spending as they manage cost-of-living pressures and rising interest rates.

“While more customers are calling us, we are not seeing significant increases in customers falling behind. We ended the year with just over 13,000 customers in hardship arrangements, well below the peak experienced during COVID,” King said. 

Conflicts in the Middle East and Ukraine mean there is uncertainty in the global outlook, however the domestic economy has been resilient and King said employment and productivity would be the key measures to watch in the year ahead. 

King said he was broadly positive on the prospects for the economy in 2024 and said Westpac was in a strong position to support customers. 

In July, Westpac announced an organisational restructure which saw the consumer and business banking divisions separated. King said the new simplified structure would help to sharpen the bank’s focus on growth, returns and improving customer service.  

The business segment reported a 77 per cent uplift in net profit, driven by a 5 per cent increase in net loans. Lending to the agriculture, commercial property and diversified sectors was particularly strong. 

The consumer division saw deposits rise by 10 per cent and also grew the home loan book, although net profit overall slipped by 7 per cent as tough competition squeezed margins in the mortgage market and inflationary pressures saw expenses rise. 

The Institutional Bank also performed well, with net profit up 54 per cent. The increase reflected balance sheet growth, higher interest rates which supported deposit spreads, and an improved Financial Markets performance.

The bank’s net interest margin – a closely watched gauge of profitability - rose 2 basis points to 1.95 per cent for the full year. Core NIM, which excludes Treasury, Markets and Notable Items, expanded 12 basis points to 1.87 per cent. 

Operating expenses were down 1 per cent overall but rose 1 per cent excluding notable items. 
 

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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