Australian Westpac advances on costs and reports increased pressure on margins

  • Westpac cuts spending, reiterates A$8 billion target by 2024
  • First-quarter cash earnings beat estimates
  • First quarter net interest margin falls to 1.91%, and continues to decline
  • Proposes restructuring plans; downsize, combine roles

Feb 3 (Reuters) – Westpac Banking Corp (WBC.AX) beat first-quarter profit estimates and made progress in cutting costs on Thursday, giving investors encouraging signs as the lender warned that the strong competition in mortgage lending would further squeeze margins this year.

Australia’s fourth-largest bank by market value made organizational changes in light of pressure on margins, cutting its workforce by more than 1,100 people in the quarter, reducing corporate functions by around 20% and combining key management roles.

The lender reiterated that it would meet its cost target of A$8 billion ($5.71 billion) by 2024 as it cut spending to A$2.70 billion in the quarter, down 7% compared to the quarterly average for the second half, excluding notable items.

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Progress on the cuts and earnings overshoot sent the shares up 3.1% to A$21.23, outperforming its ‘Big Four’ peers and the broader market (.AXJO).

Westpac had lost about a fifth of its value since November, when it reported falling margins, lost profits and slow progress in turning around costly outdated software and convoluted procedures. .

“Early signs of cost reduction should reassure investors that costs will likely decline through fiscal 2022, as indicated,” Citi said in a note.

However, Westpac will face intense competition this year for mortgages amid record high rates, with customers now considering switching to fixed rate loans which tend to be underwritten at a lower margin than fixed rate loans. variable rates.

Its net interest margin, a key measure of profitability, fell 8 basis points in the first quarter to 1.91% from 1.99% in the second half of fiscal 2021.

The bank also set aside an additional A$551 million to cover the effects of the pandemic on supply chains and certain sectors, resulting in an impairment charge of A$118 million in the quarter.

Cash profit for the three months to December was A$1.58 billion, down from the A$1.97 billion reported a year ago, but higher than the A$1.47 billion forecast. Australian dollars from Citigroup and AUD 1.38 billion from Morgan Stanley.

($1 = 1.4041 Australian dollars)

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Reporting by Nikhil Kurian Nainan and Savyata Mishra in Bengaluru; Editing by Devika Syamnath and Sherry Jacob-Phillips

Our standards: The Thomson Reuters Trust Principles.

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