SYDNEY: Westpac Banking Corp beat estimates for first-quarter profit and made headway in cutting costs yesterday, offering investors encouraging signs as the lender warned that steep competition in mortgages would further drag margins this year.
Australia’s fourth-largest bank by market value brought forward organisational changes in light of margin pressure, cutting headcount by more than 1,100 over the quarter, reducing corporate functions by around 20% and combining key management roles.
The lender reiterated that it would meet its cost target of A$8bil (US$5.71bil or RM24bil) by 2024, as it cut expenses to A$2.70bil (RM8.03bil) in the quarter, down 7% from the quarterly average of the second half, excluding notable items.
The progress on cuts and the profit beat sent shares up as much as 3.1% to A$21.23 (RM63.17), outperforming its “Big Four” peers and the broader market.
Westpac had lost about a fifth in value since November, when it reported a drop in margins, a profit miss and slow progress in the costly turnaround to fix outdated software and convoluted procedures.,
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“Early signs of cost reduction should provide investors some comfort that costs will likely decline through fiscal 2022 as guided,” Citi said in a note.
However, Westpac will have to contend with intense competition this year for mortgages amid record-low rates, with customers now considering a switch to fixed-rate loans that tend to be written at a lower margin than those at variable rates.
Its net interest margin, a key measure of profitability, fell 8 basis points in the first quarter to 1.91% from 1.99% in the second half of fiscal 2021.
The bank also set aside A$551mil (RM1.64bil) more to cover the pandemic’s hit to supply chains and certain sectors, resulting in an impairment charge of A$118mil (RM351mil) in the quarter.
Cash earnings for the three months ended December came in at A$1.58bil (RM4.7bil).— Reuters