WESTPAC chief Gail Kelly declared she is prepared to draw a line in the sand over the the bank's profitability, declaring the lender will be prepared to forgo lower-returning business for areas of faster growth.
The comments came as Westpac delivered a 5 per cent lift in full-year cash profit to $6.6 billion, buoyed by a revitalised retail banking arm, tighter costs and a boost in markets-related trading income.
Mrs Kelly said yesterday she was unwilling to let the bank's profitability fall back to the levels seen in the midst of the global financial crisis, with a key profit measure return on equity to remain above the critical 15 per cent mark.
"We've put a line in the sand about making sure we maintain our [return on equity]," Mrs Kelly said.
"We're directing our effort and energy where we believe we can get the best returns."
This will see Westpac making more aggressive moves into areas such as attracting retail deposits, superannuation and trade finance.
It will also lend more to faster-growing industries such as natural resources and the healthcare sector. However this may come at a cost to customers in the case of those industries that are struggling under a higher dollar, or face a subdued outlook.
Westpac's headline profit of $5.97 billion was down 15 per cent on the same period last year. However, the previous year's result had been inflated by a $1.11 billion tax credit as a result of a benefit from the St George Bank merger.
The latest result was driven by a stronger-than-expected second-half profit of $3.4 billion. Although analysts noted this was boosted by some $225 million in one-off items including higher treasury income and funds management fees.
Even with Mrs Kelly's promise, return on equity came in at 15.5 per cent falling from 16 per cent over the past year. While this measure is ahead of many of its rivals, it is still some way behind bigger rival Commonwealth Bank's 18.6 per cent.
Westpac's flagship retail and business banking arm powered the latest result with profit up 14 per cent over the year as profit margins improved. At the same time there were signs of a recovery in flat first-half performance for both Westpac's St George Bank and its BT Wealth arm.
"There is evidence that Westpac's strategy is working well," Deutsche Bank analyst James Freeman said.
Westpac declared a fully franked final dividend of 84? a share, in line with market expectations. This took the full-year dividend to $1.66 a share which is up 6 per cent on the last year.
The latest result rounds off the big bank reporting season, with profit growth among the big four running at the slowest rate for some time.
Combined full-year cash profits for the four major banks of $25.2 billion, was up 4 per cent from the previous year.
CBA was the standout with a bumper $7.1 billion profit while rival National Australia Bank's $5.4 billion profit was weighed down by its troubled UK business.
Mrs Kelly said it was a "lineball call" on whether the Reserve Bank cuts official cash rates today. But any cut which could see cash rates return to a low of 3 per cent was likely to happen within the next few months, she said.
Even after axing thousands of jobs across the bank over the past few years, Mrs Kelly said further job losses were likely as Westpac seeks to improve efficiency.
Westpac axed the equivalent of 2037 full-time roles over the past 12 months.
"I expect overall the numbers of staff to reduce next year, but probably not at quite the rate we had over the last few years," she said.
Frequently Asked Questions about this Article…
What were Westpac's latest profit results and how did cash profit perform?
Westpac reported a full-year cash profit of $6.6 billion, a 5% increase on the prior year. However its headline profit was $5.97 billion, down 15% compared with the previous year.
Why did Westpac's headline profit fall even though cash profit rose?
The headline profit fell largely because the previous year's result included a $1.11 billion tax credit related to the St George Bank merger, which inflated last year's comparable result.
What is Westpac's return on equity and what target has CEO Gail Kelly set?
Westpac's return on equity was 15.5%, down from 16% a year earlier. CEO Gail Kelly said the bank has drawn a 'line in the sand' to keep return on equity above the critical 15% mark.
How is Westpac changing its strategy to chase higher returns?
Gail Kelly said Westpac will direct effort into faster-growth areas, including attracting retail deposits, expanding superannuation and trade finance, and lending more to industries such as natural resources and healthcare.
Could Westpac's growth strategy affect customers in some industries?
Yes. The article notes Westpac may prioritize faster‑growing sectors, which could come at a cost to customers in industries struggling with a higher Australian dollar or a subdued outlook.
Did Westpac pay a dividend and what was the dividend amount?
Westpac declared a fully franked final dividend of 84 cents a share, taking the full-year dividend to $1.66 a share—up 6% on the prior year.
Has Westpac been cutting jobs and should investors expect more job cuts?
Westpac cut the equivalent of 2,037 full‑time roles over the past 12 months. Gail Kelly said further staff reductions are likely as the bank seeks improved efficiency, though probably not at the same pace as recent years.
How did Westpac's results compare with other big Australian banks during the reporting season?
The big four banks reported combined full‑year cash profits of $25.2 billion, up 4%. Commonwealth Bank stood out with $7.1 billion profit, while National Australia Bank reported $5.4 billion and was weighed down by its UK business. Westpac's return on equity (15.5%) remains behind Commonwealth Bank's 18.6%.
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