Following what the CEO has termed a “disappointing year,” a major bank is shifting its focus to “re-setting for the future” with a particular emphasis on strengthening its balance sheet in the low interest rate environment.
In its full year result for 2019, Westpac Group reported its statutory net profit was down 16% and cash earnings were down 15% on 2018.
CEO Brian Hartzer said, “2019 has been a disappointing year. Financial results are down significantly in a challenging, low-growth, low interest rate environment.”
“Our result was impacted by customer remediation costs and the reset of our wealth business. Excluding these notable items, cash earnings were down 4% on FY18, which was mainly due to a reduction in wealth and insurance income from the exit of our financial planning business, higher insurance claims, and the impact of regulatory changes on revenue.”
The group has paid out around $350m in refunds to more than 500,000 customers since 2017.
However, Hartzer highlighted that the group’s credit quality “remains sound” and impairment charges were low at 11 basis points.
“Nevertheless, we have seen a small rise in 90 day mortgage delinquencies over the year, in part due to low wage growth and slowing economic activity. 70% of our Australian home loan customers are ahead on their repayments including offset accounts,” he added.
The bank expects growth in the Australian economy to continue to be subdued with GDP growth remaining below trend at around 2.4% in 2020.
“We also expect the recent recovery in house prices, particularly in Sydney and Melbourne, to extend into 2020. This will provide some boost to households which, nevertheless, are likely to remain cautious on further increasing debt levels. The contraction in the residential construction cycle will extend well into 2020,” said Hartzer.
However, while modest in size, the expected growth is expected to derive primarily from movement in the residential loan book.
“We expect system credit growth in the year to September 2020 to lift from 2.7% this year to 3%. That will be largely driven by housing where we expect a lift from 3.1% to 3.5%, although business credit growth is expected to slow somewhat from 3.3% to 3%,” the CEO explained.
“Although 2020 will continue to be challenging, we believe our service led strategy, disciplined growth and solid portfolio of businesses will deliver for shareholders and customers.”