Westpac (WBC) is a current holding within the ASX Blue Chip portfolio and announced its latest earnings report for the first quarter on Monday, with the market reacting positively with the shares closing +2.73%.
For the three months through to December, Westpac reported an unaudited statutory net profit of $1.5 billion, down 6% on the quarterly average for the prior six months, as hedge accounting weighed on returns. When excluding notable items, such as hedge accounting, quarterly net profit was $1.8 billion, a figure in line with the average over the previous six months. The company stated that it expects the impact of notable items to reverse over time. The bank’s net interest margin dropped 4 basis points to 1.78%, with Westpac stating the net interest margin was ” well managed in light of lending and deposit headwinds.”
The company reported that stressed assets fell by four basis points to 1.22% of its total committed exposure, which helped offset the increase in mortgage delinquencies. WBC recorded a common equity Tier 1 ratio of 12.3%, a slight decrease on the previous quarter’s reading of 12.4%. The quarter also saw positive operating momentum with customer deposits and loans growing $7.9 billion and $5.6 billion respectively.
Westpac CEO Peter King remained optimistic and expects the economy to stay resilient, with the support of low unemployment and “healthy” corporate sector balance sheets. King has stated that he expects monetary policy to ease within a year, adding “The economic slowdown, combined with abating inflationary pressures, should provide scope for monetary policy to become less restrictive within the next year.”
Westpac benefited from interest rates moving higher, but increased competition on home loans and customer deposits has and may continue to weigh on margins. As a reminder, WBC’s inclusion in the Blue Chip portfolio is based on its dividend yield, which currently sits at 7.83% and its inclusion will depend on how the stock trades between now and the next rebalance date of March 1st, 2024.
