The Westpac Banking Corp (ASX: WBC) share price will be one to watch on Monday.
This follows the release of Australia's oldest bank's full year results for FY 2022.
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Westpac share price on watch following FY 2022 results
- Statutory net profit up 4% to $5,694 million
- Cash earnings down 1% to $5,276 million
- Fully franked final dividend of 64 cents per share
- FY 2022 dividend up 6% to $1.25 per share
- Net interest margin (NIM) down 17 basis points to 1.87%
- Costs down 19% excluding notable items
What happened in FY 2022?
For the 12 months ended 30 September, Westpac reported a 1% decline in cash earnings to $5,276 million. This was driven by weakness in the consumer and business segments, which offset growth in New Zealand and the institutional business.
Westpac Consumer reported an 11% decline in cash earnings to $3,291 million due to a lower NIM and higher impairment charges. Net loans increased 3% or $11.9 billion thanks largely to owner-occupied mortgages. Deposits increased $14.2 billion or 5% and expenses were down 4% from FY 2021. Positively, over the second half, core earnings were 10% higher.
Westpac Business posted a 15% decline in cash earnings to $918 million or 7% excluding notable items. Expenses were down 15% year over year.
Westpac Institutional Bank reported a $1.2 billion increase in cash earnings. This was due to their being no notable items in FY 2022. Excluding notable items from the previous year, cash earnings were up 50% thanks to a 16% reduction in expenses, a 20% increase in net interest income, and lower impairments.
In New Zealand, Westpac posted a 15% increase in cash earnings to $1,165 million. Excluding notable items, such as the gain on sale of NZ Life Insurance, cash earnings were down 2% year over year. Core earnings rose 6% over the second half.
The Specialist Businesses segment reported a cash earnings loss of $723 million. This was driven largely by the $1.1 billion loss on the sale of the Australian Life Insurance business.
Despite posting an overall decline in cash earnings for the year, that didn't stop the Westpac Board from declaring a fully franked full year dividend of $1.25 per share, up 6% on FY 2021.
How does this compare to expectations?
The good news for the Westpac share price today is that this result appears to have come in ahead of expectations.
According to a note out of Goldman Sachs, its analysts were expecting a 4% decline in cash earnings (before one-offs) to $5,140 million and a full year dividend of $1.23 per share.
Management commentary
Westpac CEO Peter King was pleased with the result. He said:
In 2022, we've delivered a solid financial result and made steady progress on our strategic priorities. We've built positive momentum and positioned the company for the future. I'm pleased with our overall performance. We sharpened our focus on core banking, reduced costs, and improved service to customers.
Westpac returned to growth in our key segments of Australian mortgages and business lending. In the second half, our banking divisions delivered strong growth in core earnings on the back of good cost and margin management. Our balance sheet is in good shape across capital, liquidity and asset quality and we've determined a final, fully franked ordinary dividend of 64 cents per share.
Outlook
Mr King appears positive on the bank's future and is expecting further cost reductions. He explained:
After the work of the past two years, Westpac is now a simpler, stronger bank. We're continuing to get our costs down, we're simplifying our operations and our program of co-locating branches in similar locations is removing duplication. At the same time, we are investing in the right places, such as the launch of our digital mortgage and new personal finance management tools in the Westpac app.
Our year-on-year results are solid and over the past six months in particular we have demonstrated momentum, with core earnings (ex-notable items) up 12% and our net interest income up 7%. Margins increased 5bps in the second half to 1.90% but they remain below historical levels.
Finally, Mr King spoke about the elephant in the room – inflation. Here's what he had to say:
In Australia, consumer spending is resilient but as higher rates bite, we expect the heat to come out of the economy and inflation pressures to ease. Small business is one sector we are watching closely as consumption slows. Housing prices have fallen in recent months and this will continue into 2023. Credit growth is expected to ease. GDP growth will slow and unemployment will rise.
These will be necessary outcomes if we are to lower inflation. The economy remains robust and Westpac is well positioned to handle the road ahead. Our own portfolio is in good shape going into 2023.
