Westpac has reported a 70 per cent drop in first-half earnings. Image by Kelly Barnes/AAP PHOTOS

Financial Services

Westpac puts off dividend as profit slides

2020-05-05 14:18:25

Westpac has joined rival ANZ in deciding to not pay an interim dividend to shareholders after it posted a first-half profit slide because of hefty impairment charges related mainly to the COVID-19 pandemic.

Australia’s second-largest lender reported a 70 per cent slump in cash earnings to $993 million for the six months ended March 31, from $3.30 billion a year earlier. 

Net profit was down 62 per cent to $1.19 billion. 

The bank also announced a review of underperforming businesses such as wealth platforms, retirement products, insurance, and auto finance businesses, which make up about 10 per cent of the group revenue.

“This is the most difficult result Westpac has seen in many years,” chief executive Peter King said. 

“It is significantly impacted by higher impairment charges due to COVID-19, as well as notable items including the AUSTRAC provision.”

“In light of the changed economic outlook we have increased Westpac’s provisions for expected credit losses to $5.8 billion, which includes approximately $1.6 billion of additional impairment charges predominantly related to COVID-19 impacts,” he said.

Westpac shares fell as much as 1.0 per cent in early trade before recovering. By 1400 AEST, the stock was up 3.3 per cent at $15.84 each.

Westpac had last week announced the $1.6 billion impairment charge for potential loan defaults from customers due to the COVID-19 related shutdown. 

It’s profitability was also hit by a $900 million for a potential legal penalty from AUSTRAC anti-money laundering proceedings.

The bank is accused of 23 million breaches of anti-money laundering laws and the final penalty will be paid following either a settlement, or a hearing, with additional costs related to its financial crime response plan.

On Monday, the bank said its board was recognising the uncertain economic and operating conditions and how these may develop over the next six months while taking the decision to defer dividends. 

Westpac also accepted recent guidance from prudential regulator APRA on dividends and said it was being prudent at this point in time. 

The lender had paid a fully franked interim dividend of 94 cents a share a year ago.

Cash earnings in its business lending division fell 51 per cent from a year ago to $604 million mostly linked to the economic outlook as a result of COVID-19.

Earnings in the institutional banking division, meanwhile, slumped 68 per cent to $175 million.

Westpac said it continued to support customers through the COVID-19 crisis, with 105,000 home loan accounts – with total loan value of $39 billion – put on hold. 

Another 31,000 Australian business loans, worth $8.2 billion, have also been put on hold.

However, Westpac’s balance sheet remained strong, Mr King said. 

The bank said it had kept APRA informed about stress testing scenarios and capital position and had not received any concerns about the bank’s capital position.

The underperforming businesses will be transferred into a new division, with options to be reviewed including their sale. The review would provide an opportunity to “release” $4 billion in regulatory capital, the bank said

Meanwhile, Mr King said in Westpac’s view Australia faces a sharp economic contraction in 2020 with a solid rebound not expected until the December quarter.

It expects caution to prevail well into 2021. 

Westpac said its board will continue to review dividend options during the course of this year. 

Last week, smaller rival ANZ deferred paying shareholders an interim dividend after posting a 62 per cent slide in its first-half cash profit due to the COVID-19 hit. Rival lender NAB has also made a $807 million provision for coronavirus losses.

WESTPAC HY PROFIT SLUMPS

* Revenue up 6.0pct to $10.6b

* Cash profit down 70pct to $993m

* Statutory profit down 62pct to $1.19b

* No interim dividend