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 one-off $1.11 billion tax credit as a result of a benefit from the merger with St George Bank.
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 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 NAB's $5.4 billion profit was weighed down by its UK business.
Mrs Kelly said it was a "lineball call" on whether the Reserve Bank cuts rates today.
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 what do they mean for investors?
Westpac reported a full-year cash profit of $6.6 billion, up 5% year-on-year, driven by a stronger second half. Its headline profit was $5.97 billion, which was down 15% compared with the prior year because that year included a one-off $1.11 billion tax credit from the St George merger. For investors this means the bank delivered underlying profit growth, but headline figures are affected by timing and one-off items.
What is Westpac's return on equity (ROE) and what target has management set?
Westpac's return on equity came in at 15.5%, down from 16% a year earlier. CEO Gail Kelly has drawn a 'line in the sand' to keep ROE above a critical 15% mark, directing the bank to prioritise higher-return businesses to sustain that level. For context, larger rival Commonwealth Bank reported an ROE of 18.6% in the same reporting season.
Is Westpac paying a dividend and how much will shareholders receive?
Yes. Westpac declared a fully franked final dividend of 84 cents per share, bringing the full-year dividend to $1.66 per share — a 6% increase on the prior year. The dividend policy reflects the bank's stronger cash profit and capital position.
What strategic changes is Westpac making to lift growth and returns?
Westpac is prioritising higher-return areas and will be more aggressive in attracting retail deposits, expanding superannuation and trade finance businesses, and lending more to faster-growing industries such as natural resources and healthcare. Management says it will be prepared to forgo lower-returning businesses in order to protect overall profitability.
How did Westpac's retail and business banking divisions perform?
Westpac's flagship retail and business banking arm powered the result, with profit up 14% over the year as profit margins improved. There were also signs of recovery in St George Bank and the BT Wealth arm, which had been flat in the first half.
How did one-off items influence Westpac's reported profits?
One-off items had a meaningful impact. The prior year's headline profit was inflated by a $1.11 billion tax credit tied to the St George merger. In the latest half, analysts noted about $225 million of one-off items — including higher treasury income and funds management fees — that boosted second-half profit to $3.4 billion.
Has Westpac been cutting jobs, and should investors be concerned about further staff reductions?
Westpac has cut jobs as part of an efficiency drive, axing the equivalent of 2,037 full-time roles over the past 12 months. CEO Gail Kelly said further job reductions are likely next year as the bank continues to improve efficiency, but probably not at the same rate as recent years. Investors should see this as part of a cost-management strategy to support returns.
How did Westpac's performance compare with the other big four Australian banks this reporting season?
The big four banks reported combined full-year cash profits of $25.2 billion, up 4% from the previous year. Commonwealth Bank was the standout with a $7.1 billion profit, while NAB reported $5.4 billion, weighed down by its UK business. Westpac's results showed solid retail banking momentum and an ROE ahead of many rivals, though still below Commonwealth Bank's level.
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