Earnings Call: Westpac's Disciplined Approach Yields Mixed Results

Westpac Banking Corporation (ASX: WBC) CEO Peter King provided a detailed review of the bank's performance during the 2024 earnings call. According to the report, the bank's statutory net profit was $7 billion, indicating a 3% decrease compared to the previous year. Despite the decline, the bank experienced growth in key areas, such as business loans, consumer deposits, and home loans. Westpac also announced a $1 billion increase in its share buyback program and raised its full-year dividends by 6%, bringing it to $1.51 per share.

Key Points:

• Statutory net profit was $7 billion, reflecting a 3% annual decline.
• Return on tangible equity was 11%.
• Business loans and consumer deposits grew by 8%; home loans increased by 5%.
• Home loan approval times fell below 5 days.
• Non-interest income declined due to past business sales and market performance.
• Expenses rose by 7%, mainly due to technology investments.
• Impairment provisions remained low at 7 basis points.
• Digital services in consumer banking scored highly.
• The UNITE program is expected to streamline operations and includes a $2 billion investment forecast for 2025-2028.
• The CET1 ratio remained strong at 12.5%, supporting increased share buybacks and dividends.
• Half-year net profit rose by 9% to $3.6 billion.
• Total loans increased by 3%, with Australian home loans growing by 2%.
• The bank maintains a strong capital position and credit quality.
• Investment expenditures decreased by 9% year-on-year.
• Stress risks rose to 1.45% due to delays in home loan repayments.
• CEO Peter King is set to step down in May, providing a positive outlook for the Australian economy.

Company Outlook: Westpac expects 5% growth in home loans and 7% growth in business loans in the first half of 2025. The focus will continue to be on cost management and technology investments. The Australian economy is expected to recover, with GDP growth projected to rise to 2.5% in 2025.

Negative Aspects:

• Statutory net profit decreased by 3%.
• Non-interest income was negatively impacted by past business sales and market performance.
• Expenses climbed due to technology investments.
• Stress risks increased to 1.45% primarily due to delays in home loan repayments.

Positive Aspects:

• Business loans, consumer deposits, and home loans showed growth.
• The bank's digital services in consumer banking received high ratings.
• The CET1 ratio ranks in the top quartile globally, strengthening financial stability.
• Share buybacks and dividend payments increased, demonstrating strong capital returns to shareholders.

Shortcomings:

• Despite overall loan growth, RAMS balances decreased.
• Investment expenditures declined, which may indicate slowing future growth in certain areas.

Q&A Highlights:

• Borrowers are generally managing high-interest rates well, with an increase in home loan offset balances.
• The potential impact of falling interest rates on borrowers' repayment capabilities is viewed positively, with most making progress on repayments.
• Concerns were raised about the potential for prolonged high-interest rates to slow economic growth by reducing disposable income.
• The primary issue for housing is not access to financing but supply; there is a need for affordable housing solutions.

Westpac's earnings call painted a picture of a bank navigating a challenging economic environment with a disciplined financial approach. Although some areas, such as non-interest income and net profit, showed declines, the bank's overall growth strategy and investments in technology and customer service underscore its resilience and adaptability. With a strong capital position and a focus on maintaining solid credit quality, Westpac is preparing for future economic challenges and opportunities. The transition to new CEO Anthony is expected to sustain the bank's strategic direction, with further updates anticipated in upcoming results.