Westpac Delivers Strong Results

Post by Sharat on August 24, 2010 · Under Business News, Company News, banking, interest rates · Comment 
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Gail Kelly, chief executive of Australian banking major Westpac is the latest banking chief to warn that the sector faces significant revenue head winds, that will slow their growth in earnings.

Westpac, which reported earnings on Monday, posted a $1.4 billion underlying net profit for the quarter ending June, representing a leap of 27 per cent.

The lender, like its peers, benefited from a sharp decline in provisions for bad and doubtful debt, but despite its success, the Sydney based bank followed the larger trend that has emerged amongst its peers, with revenues, and net interest margins under siege.

Westpac’s quarterly revenue fell by 1 per cent, with net interest margins falling by two basis points as a result of higher funding costs, and volatility in financial markets.
“This has been a solid quarter and I’m happy with the way that we are dealing with a challenging environment,” Mrs Kelly said.

Mrs. Kelly joined the chorus of banking chiefs issuing her own warning that there is fresh pressure on revenue as a result of more expensive funding costs, and intense competition for retail deposits.

“We have had a few revenue headwinds — the whole sector has seen some of them flow through. The first one was the reduction in exception fees, but that was a headwind dealt with at the start of 2010. But there are going to be further revenue headwinds as the average cost of funds goes up — there’s a number of moving parts.” Mrs. Kelly said.

The Westpac chief said the declines in revenue may intensify the lower lending and credit growth outlook.

During the quarter, Westpac increased lending to Australian households and small businesses by an additional $7 billion, whilst increasing its deposit base by $4 billion.

Mrs. Kelly added that the lender has experienced a sharp rise in the number of customers taking advantage of the lenders online deposit accounts, instead of traditional term deposits. Mrs. Kelly said that competition between the major lender remained intense.

“There are always waves of particular intensity around pricing,” she said. “We saw a wave of intensity at the start of the calendar year, then it waned mid-year and now it’s starting to pick up. The online pricing out there is very, very competitive and that creates a negative impact for us.”

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