Following the reports from National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) last week; today, it was Westpac Banking Corp's (ASX: WBC) turn to report its 2015 financial results.
Here're five key takeaways from Westpac's report for the year ended 30 September 2015:
- Cash profit was 2% higher at $7.82 billion
- A final dividend of 94 cents per share was declared
- The bank's all-important CET1 ratio was 9.5%
- Its cash net interest margin was steady at 2.08%; and
- Its outlook for Australian banks was for a "lower-for-longer" credit growth, competition and regulatory environment.
Management commentary and Analysis
"Australian retail and business banking has been the key driver of performance, with Westpac RBB increasing cash earnings by 8% and St. George up by 7%. The New Zealand division also reported a 6% increase in cash earnings (in NZ$)," CEO Brian Hartzer said.
"All divisions continued to grow their businesses and are in good shape," He added. "However, some market headwinds contributed to a softer performance in our wealth and institutional businesses."
During the year, Westpac's loan book grew a robust 7.4%, while impairments for bad loans remained relatively modest at $753 million. "Our balance sheet is strong, we have significantly increased capital levels, and our asset quality is sector-leading," Mr Hartzer said.
Pleasingly, net interest income (the net revenue generated from lending activities only) rose 6% to $14,239 million with the net interest margin flat at 2.08%. The group's expense to income ratio was 43.8%, up from 42.9%.
The bank's final dividend of 94 cents per share takes the full-year payment to shareholders to 187 cents per share, up 3%.
Despite the increase in dividend payments, Westpac's capital position was upheld thanks to its underwritten dividend reinvestment plan and the divestment of its stake in BT Investment Management Ltd (ASX: BTT). Moreover, following the recently announced capital raising, Westpac's capital position is expected to be within the top quartile of banks globally.
Outlook
Despite choppy consumer confidence and a transition from the mining boom, Mr Hartzer said he remained positive on the growth outlook for the economy. "While consumers remain cautious, there are signs of improvement in non-mining related investment as the economy shifts to being more service sector-driven."
Mr Hartzer also expected the banking sector to undergo a shift, from housing to other forms of credit growth. "For Australian banks, this means we continue to operate in a 'lower-for-longer' environment with modest credit growth, intense competition, and some ongoing regulatory uncertainty. However, housing credit growth is expected to ease, business is picking up, and we are continuing to grow in the wealth and insurance markets."
Buy, Hold or Sell
Within the first hour of trading, shares of Westpac were 1.9% lower despite the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) trading just 0.9% lower. As I've said for some time, it's best to buy bank stocks like Westpac during market downturns given their significant leverage to the market cycle. Therefore, with shares looking more than fairly priced today, I'm not a buyer of Westpac.
