Westpac’s Profit Remained Flat In FY18 Due To Tough Operating Conditions

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Westpac Banking Corporation (ASX: WBC) announced its full-year results on 5 November 2018. As per the company’s CEO Mr. Brian Hartzer, FY 2018 was a difficult year for the Bank as it faced tough operating conditions with higher regulatory, compliance and funding costs, and increased competitive pressure particularly in the second half of the year. The reported profit of Westpac was $8,095 million which is only 1 percent higher than the last year, however, the balance sheet remained strong across all dimensions of asset quality, capital, and liquidity, and the bank made substantial progress on its service-led strategy and digital transformation program. After the release of the financial results, the share price of Westpac increased by 1.245 percent as on 5 November 2018.

In FY 2018, Business growth was sound with loan growth of 4%, average funds increased by 4%, and Life Insurance premiums 20% higher, however, results were impacted by the higher provisions relating to customer refunds, payments and costs, the full period impact of the bank levy, and a lower markets contribution.   

The Cash earnings of $3,814 million in FY 2018 were down by 10% and the impairment charges fell by 19% in FY 2018 as compared to FY17. The result was impacted by $281 million (after tax) in provisions for estimated customer refunds and payments and associated costs along with provisions for estimated litigation settlements.

Westpac’s expenses increased by 6 percent in FY 2018 due to higher spending associated with investment and an increase in regulatory and compliance costs, with $173 million of productivity savings more than offsetting ordinary cost growth. Westpac’s total loans grew by 1% mainly due to an increase in Australian mortgage lending. Westpac Institutional Bank (WIB) recorded a 6% decrease in cash earnings to $1,086 million mainly due to lower Markets revenue and it was partially offset by an impairment benefit. Westpac New Zealand delivered cash earnings of NZ$1,017 million which is 5% higher than the last year. Group Businesses delivered cash earnings of $101 million in FY18, which were $9 million higher than the prior year due to a higher Treasury contribution (from interest rate risk management) and a $68 million improvement in non-interest income due to gains on NZ earnings hedges. Further, the Consumer Bank’s (CB) cash earnings of $3,140 million were $15 million lower than FY17.

In FY 2018, Westpac invested more than $800 million in system upgradations, digital transformation, and innovation to support its ambition to be one of the world’s great service companies. Bank’s focus has been on delivering its technology platforms while simplifying and automating processes to make banking easier for customers. The bank has already migrated 100 applications onto its cloud infrastructure platforms which are now largely complete. The board of Westpac declared a fully franked dividend of 94 cents per share which will be paid on 20 December 2018.

WBC’s shares traded at $26.830 with a market capitalization of circa $91.02 billion as on 5 November 2018 (AEST 3:08 PM).


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