Westpac Banking Corporation (ASX: WBC) has reported a decline of 24% in its statutory net profit for the first half of FY19. Further, the group’s cash earnings were down by 22% to $3,296 million in H1FY19 as compared to the H1 FY18.
Cash earnings were majorly impacted by additional provisions for estimated customer refunds and provisions for costs associated with the reset of the Wealth business. If major remediation & restructuring items are excluded the cash earnings is down by only 1%.
Group CEO Mr. Brian Hartzer has called the results “disappointing” and has blamed weaker business conditions and bank's outstanding issues for it.
The group has been dealing decisively with its outstanding issues, including remediation and resetting its wealth strategy and this has majorly impacted the results of the first half. Besides that, for the past six months, the group has been dealing with legacy issues while improving its products and services.
In the past six months, the group has progressed towards its exit from personal financial advice business to focus on the parts of its wealth business where it has a competitive advantage.
Following the scrutiny by the Royal Commission, WBC has been trying to win its customers trust which is why it has improved complaints handling, removed all teller incentives, and introduced new digital initiatives.
During the first half, Westpac was focused on resetting its wealth strategy to ensure it can efficiently and sustainably serve its customers’ financial needs and for that, it has been realigning BT’s wealth and insurance businesses into its Consumer and Business divisions. Further, the group has introduced a new referral model for personal advice.
The group is currently in a transition period, due to which it has been facing many challenges. However, despite these challenges, the group was able to manage its margins with Net interest margin down by only 12bps from pcp due to provisions for customer refunds and higher short-term funding costs.
During the first half, Asset quality remained sound while stressed exposures to total committed exposures increased modestly by 1bp compared to March 2018.
Westpac New Zealand’s cash earnings increased by 15% to $555 million on H1FY19 as compared to pcp, supported by sound balance sheet growth which resulted in higher operating income.
While providing the outlook, Mr. Hartzer told that the Australian economy will remain subdued with GDP growth this year and house prices are likely to remain soft. The Bank is currently dealing with a difficult commercial environment and it expects its system housing credit growth to slow to 3% in the current bank year. Further, the bank has been making progress in implementing the recommendations of the Royal Commission and other industry initiatives in order to win back customers’ trust.
At the time of writing, i.e., on 6 May 2019 AEST 11:45 PM, the stock of the company was trading at a price of A$26.915, down 1.877% during the day’s trade with the market capitalisation of ~A$94.5 Bn.
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