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FY20 Q3: Westpac (ASX:WBC) cancels dividend

Westpac Banking Corp (ASX: WBC) has released its FY20 third quarter. The bank announced that it won’t pay an interim dividend.

FY20 Q3 update

The major ASX bank announced that it produced a cash profit for the FY20 third quarter of $1.32 billion, which was higher than the FY20 first half average quarterly average of $497 million – this was up 19% excluding notable items (like customer remediation and AUSTRAC costs).

Westpac announced that statutory profit for the quarter was $1.12 billion, up from the quarterly average of $595 million in the previous half.

The big bank revealed an impairment charge of $826 million further increasing provisions and provisioning cover. However, profit was higher in this quarter because the impairment charge was lower.

Westpac achieved a net interest margin (NIM) of 2.05% for the June 2020 quarter because of low interest rates, down from 2.13% in the FY20 first half. It ended the quarter with a CET1 capital ratio of 10.8%, which was a bit higher than APRA’s unquestionably strong rating of 10.5%.

The bank’s growth in capital was offset by higher credit risk weighted assets (RWA), including $7 billion RWA overlay related to estimated COVID-19 impacts.

Westpac disclosed that the amount of stressed assets were higher due to some businesses being downgraded, particularly in high-risk sectors together with higher mortgage delinquencies which increased to 1.49%.

There are currently 78,000 mortgages that are being deferred, representing $30 billion, this is down from 135,000 mortgages at the peak (representing $51 billion). Around half of borrowers are expected to return to making payments.

Dividend

The Westpac board has decided not to pay its deferred interim dividend so that it can retain a strong balance sheet and the ongoing uncertainty. The board will consider the dividend decision at the final result. Make sure you bookmark Rask Media so you can come back to see Westpac’s final dividend decision in the annual result.

Management comments

Westpac CEO Peter King said: “We have maintained our strong balance sheet and increased provisions for bad debts to support our prudent approach to managing impairments.

While there have been some signs that the economy is performing better than early expectations, significant uncertainty remains, particularly given the unpredictability of COVID-19 outbreaks and their local impacts.”

Summary

Westpac is having a difficult time. It’s understandable why the bank decided not to pay a dividend, but it’s painful for shareholders. It could be some time before Westpac pays a decent dividend again – I don’t think the economy is suddenly going to bounce back. There are many other ASX dividend shares I’d buy over Westpac such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

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Are you stuck wondering where to invest right now? Have you got cash 'sitting on the sidelines'? Are you looking for dividend income AND growth but don't know where to start? Rask's expert ASX analyst team has just released a full report, detailing where we'd invest $10,000 right now.

Not only are we offering these 11 investment ideas completely FREE, we've also released an in-depth podcast to go with the report!

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At the time of publishing, Jaz owns shares of WHSP.

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