By Alice Uribe
SYDNEY-Westpac Banking Corp. said its unaudited net profit in the first quarter of the fiscal year was 80% higher than the quarterly average for the second half of fiscal 2021.
The company also announced that it would present simplification plans and make changes to its operational and executive structure.
Westpac, the smallest of Australia’s big banks by market value, posted an unaudited net profit of A$1.82 billion ($1.30 billion) in the December quarter, up from the quarterly average of A$1.01 billion in the second half of fiscal 2021.
Cash earnings, a measure of earnings adjusted for fair value and hedging movements and used as the basis for calculating dividend payments, were A$1.58 billion on an unaudited basis, up from 74% compared to the quarterly average of A$908 million for the second half of FY2021.
Excluding notable items, cash revenue increased 1% for the period. Westpac said this mainly reflected lower spending and a strong contribution from the Treasury and Markets unit.
Still, the lender said the result was held back by lower net interest margins, a reversal of impairment charges from a benefit to a charge and the loss of revenue from businesses that had been sold, particularly the assurance.
Westpac’s NIM, a measure of the difference between what a bank pays to obtain deposits and funds and what it charges to lend money, was 1.91%, down 8 points from basis compared to the quarterly average for the second half of fiscal 2021, which the lender said was due in part to competition.
Australian bank NIMs came under pressure in a low interest rate environment, which helped lead to a surge in Australian property prices. This has spurred increased competition for mortgage market share among lenders, while leading to margin compression.
Westpac said given competitive pressures, NIMs are expected to decline further in fiscal 2022.
The group’s closely watched Tier 1 common equity ratio stood at 12.2% at the end of December, well above the Australian prudential regulator’s new benchmark of 10.25% for large banks.
Chief Financial Officer Michael Rowland said that although the lender had had a strong start to the year, the environment was still very competitive with margins still under pressure.
“In light of this, we are advancing our simplification plans and changing our operational structure to improve efficiency and bring our employees closer to the customers they support,” he said.
In 2021, Westpac set out a three-year plan to reduce its cost base to A$8 billion by 2024.
The lender said on Wednesday it would implement a key part of the plan to create a smaller headquarters and reduce the size of corporate functions by around 20%.
“We are building a simpler bank, streamlining our organization and reducing the cost of running the group. This is key to delivering better services to customers and better results for shareholders,” Chief Executive Peter King said. “The changes are primarily to head office and support functions, not customer-facing roles.”
Westpac has already reduced its workforce by more than 1,100 people in the last quarter, with the reductions including a mix of contractors and third-party staff.
At the same time, Westpac announced a restructuring of its management team, combining the roles of Chief Risk Officer and Group Executive, Financial Crime, Compliance and Conduct.
“Two years ago, we elevated Financial Crime to a dedicated executive role to ensure we had one focus on improving our performance. While there is still work to be done, the time is now. come to simplify responsibilities with our entire risk function under the Chief Risk Officer,” Mr. King said.
Chief Risk Officer David Stephen has decided to leave Westpac, remaining in the role until May. Ryan Zanin has been appointed Chief Risk Officer and will join the group subject to regulatory approval. Les Vance, Group Executive, Financial Crime, Compliance and Conduct will leave later in the year.
Westpac said it expected to incur a small restructuring charge with its first-half result.
Write to Alice Uribe at [email protected]