Everything you need to know about Westpac’s FY23 results

Westpac (ASX: WBC) raised its final dividend and announced a $1.5 billion share buyback, offering shareholders some reprieve from otherwise downbeat economic and mortgage market conditions.

While Westpac’s FY23 numbers appear strong at face value, they were generally in-line with analyst expectations. Here are the key figures:

Earnings

• Net profit up 26% to $7.2bn –  in-line with expectations

• Cash EPS up 28% to 205 cents vs. 200 cents expected

• Dividend up 14% to 142 cents per share vs. 141 cents expected

• Dividend payout ratio of 69%

Income

• Net interest income up 7% to $18.3bn vs. $18.5bn expected

• Net interest margin up 2 bps to 1.95% vs. 1.96% expected

Net interest margin drivers

• Wider deposit spreads and higher return on capital balances

• Benefits from the investment of capital in a rising rate environment

• Offset by lower spreads on loans due to ‘intense competition

Expenses

• Operating expenses fell 1% to $10.7bn

• Inflationary pressures from wages, third-party vendor costs and technology were largely offset by cost reset and simplification programs 

Assets and Capital

• Total impairment charges up 93% to $648m vs. $704m expected

• Stressed loans as a percentage of all loans rose to 1.26%, up from 1.1% six months ago but well below the 1.36% in September 2021

• Return on equity up 199 bps to 10.1% – in-line with expectations

• CET1 capital ratio up 109 bps to 12.4% vs. 12.2% expected

Comments from CEO Peter King

• “This result delivers a better return on equity, higher earnings per share and increased net profit. This is built on the back of growth in key markets including deposits, mortgages and institutional banking.”

• “A strong banking sector is vital for a resilient economy and Westpac’s balance sheet is the strongest I’ve seen in my 29 years at the bank.”

Outlook

• “The second half of 2023 presented a more challenging environment for Westpac and the broader industry. This is expected to continue into 2024.”

• “While more customers are calling us, hardship levels are well below the numbers we saw during COVID and we are not yet seeing significant increases in customers falling behind on repayments.”

• “Consumer sentiment remains weak but there are glimmers of hope with some cost pressures starting to ease for businesses, which in time should flow through to prices paid by consumers.”

The bottom line

Westpac delivered a strong set of numbers that were mostly in-line or slightly ahead of analyst expectations. Impairments and stressed loans were higher than the prior year but within company expectations and remain below pre-Covid levels. Capital position and liquidity metrics (CET1, liquidity coverage and net stable funding ratios) were all well-above regulatory minimums.

Westpac shares are up around 1.4% in early trade on Monday, close to a 3-month high. If Westpac can hold these levels – It’ll mark the first time it's closed above the key 200-day moving day average since 20 April 2023.

Westpac Bank 12-month chart (Source: Market Index)