Westpac, a holding in the ASX Blue Chip portfolio, has delivered a steady half-year result with reported net profit of A$3.32 billion, right in line with market expectations.
For everyday investors, this shows the bank is maintaining its footing despite an increasingly complex operating environment. However, the market response was less optimistic. Westpac’s share price fell 2.71% following the release, notably underperforming the broader financials sector, which declined 1.39% on the day.
This underperformance appears to reflect investor concerns over margin compression and rising expenses. The bank’s core net interest margin (NIM), a key measure of lending profitability, dipped slightly to 1.80%, down 3 basis points from the prior period. This was driven by heightened competition in the lending market and a shift in customer deposits toward lower-margin savings products. While earnings on hedged deposits and capital helped offset some of this pressure, investors seem wary about how much further margins could be squeezed, especially if interest rates fall in the second half of the year.
On the cost side, operating expenses rose 5.6% to A$5.7 billion, reflecting continued investment in Westpac’s UNITE technology program, software amortisation, and rising wages. This saw the bank’s expense-to-income ratio climb to 52.8%, up from 50.9% a year ago, indicating that more of the bank’s income is being consumed by costs.
Still, there were bright spots. Business lending grew 5%, particularly in key sectors such as agriculture, health, and professional services, supporting management’s strategic pivot toward SME and corporate clients. Meanwhile, the bank’s capital position remains very strong, with a Common Equity Tier 1 (CET1) ratio of 12.2%, well above regulatory minimums and supportive of further buybacks or shareholder returns.
Westpac declared an interim dividend of 76 cents per share, consistent with last year and reflecting a payout ratio of around 75%. For income-focused investors, this remains a key attraction.
While the broader credit environment is showing signs of resilience, with housing loan growth stabilising and impairments well provisioned, investors are clearly taking a cautious stance. The combination of a high-cost base, competitive lending dynamics, and the prospect of lower interest rates later this year has raised questions about how sustainable current profit levels will be into FY2025.
In short, Westpac remains a fundamentally sound institution, offering stable dividends and solid capital strength. However, near-term share price performance may remain challenged as the bank works to control costs and maintain profitability in a more competitive, lower-rate environment.
