Westpac profit falls slightly in FY22, but raises its dividend

Westpac’s profit for FY22 (the 12 months to 30 September 2022) came in at A$5.3bn, down 1%, but increased its full-year dividend by 6% to $1.25 per share. That may be just about all some investors may care about. But for those willing to take a deeper look, there was more to Westpac’s results than just its profit.

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Westpac profit was $5.3bn

Westpac’s cash earnings $5.276bn, down 1.4% on the prior corresponding period. The net profit was $5.694bn, up 4% from FY21 but inflated by asset sales.

However, revenues fell 2% to $19.9bn, the Net Interest Margin fell by 15 basis points to 1.87% and the Return on Equity fell from 9.8% to 9.3%. Although expenses fell by 7%, they were still $10.2bn, showing it will be a hard ask to reduce its cost base as it had planned. In fact, the bank actually increased its target from $8bn to $8.6bn, but even this appears a hard ask. 

A Westpac profit for FY23 appears certain, but the degree is uncertain

In FY23, there will be one main thing that will impact Westpac’s outlook – namely, interest rates. In principle, higher interest rates should mean more revenue to Westpac. 

But shareholders need to remember several things including the intense competition in the market, the rise in wholesale funding costs now that the RBA’s Committed Liquidity Facility is being phased out and that deposit rates will be rising too. But above all, the impact of higher rates on borrowers which might lead to owners selling their properties. 

No doubt we’ll still see Westpac profitable in FY23. Investors may be better off in other banking stocks with higher market shares or less reputational issues, but Westpac might be worth a look at a later stage. 

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