Westpac Profit Dips 3% as CEO Departs, Eyes Interest Rate Cuts to Boost Lending

Westpac Banking Corp. reported a 3% decline in annual net profit, reaching A$6.99 billion, but remains optimistic that anticipated interest rate cuts will spur demand for loans by 2025. CEO Peter King, who is stepping down, cited the bank’s strong capital position as it expands its buyback program.

CEO Peter King’s Final Dividend Boosts Payout as Westpac Awaits Rate Cuts in 2025

Westpac Banking Corp. reported a 3% decline in its yearly net profit. Still, it expressed optimism that if Australia's central bank follows its international counterparts in lowering interest rates, demand for business and home lending will increase in 2025, per The Wall Street Journal.

In the 12 months ending in September, Westpac posted a net profit of 6.99 billion Australian dollars, or US$4.59 billion, while revenue remained unchanged at A$21.59 billion.

According to CEO Peter King, the company's directors issued a final dividend of 76 Australian cents per share, increasing the total ordinary payout for the fiscal year to A$1.51/share, around the higher end of Westpac's payment range.

“Westpac’s capital position is one of the strongest I’ve seen, allowing us to further increase the share buyback program by A$1 billion,” said King, stepping down as CEO after five years.

As global inflationary pressures have subsided, Australia has fallen behind other central banks in adopting a looser monetary policy. Recently, the Reserve Bank of New Zealand and the Bank of Canada, which oversee medium-sized economies reliant on commodities like Australia's, have started cutting interest rates more quickly.

Many economists have been shocked by the economy's sustained hiring strength and inflation's obstinacy. Money-market pricing indicates the RBA can lower interest rates by approximately April or May.

Like other lenders, Westpac has profited from an environment with high interest rates. In its most recent year, Westpac's net interest margin—a crucial measure of profitability that does not include Notable Items, Treasury, and Markets—was 1.95%, down just one basis point from fiscal 2023, the bank announced on November 4.

Westpac Sees Rate Cuts Fueling Loan Demand in 2025 Amid Economic and Global Challenges

According to Westpac, rate cuts in Australia will benefit both firms and households. The bank predicted that in 2025, these factors will increase demand for housing and business loans by combining an undersupply of housing, population growth, and limited spare capacity across a large portion of the corporate sector.

However, management cautioned that it was wise to maintain its balance-sheet strength due to the impact of international elections, with U.S. voters casting ballots, and geopolitical uncertainties.

At the end of September, Westpac's widely monitored standard equity Tier 1 capital ratio stood at 12.5%, an increase of 11 basis points year over year.

At the divisional level, Westpac's consumer unit's net profit dropped to A$2.18 billion, a 17% decrease from the previous year's period. According to King, the consumer business gained speed in the second half of the fiscal year, as seen by a 6% increase in net profit over those six months.

Westpac's business sector's full-year net profit increased by 13% to A$2.36 billion, while the institutional bank's net profit increased to A$1.37 billion, a 2% increase.