The Westpac Banking Corp (ASX: WBC) share price is under the spotlight today, the major bank just reported its FY22 result.
This year represents the 12 months to 30 September 2022.
Westpac’s FY22 result
The bank told investors about a number of different elements of its report.
- Statutory net profit after tax (NPAT) grew 4% to $5.69 million
- Cash earnings down 1% to $5.28 billion, though cash earnings per share (EPS) rose 1% to $1.48
- The net interest margin (NIM) fell 17 basis points to 1.87%
- Costs dropped 19%, or 7% excluding notable items
- Final dividend per share up 6% to $1.25
However, there were other things that the ASX bank share also reported which are also worth noting. Remember, investors will focus on profit, and expectations of future profit, so this can be a factor for the Westpac share price.
- Excluding ‘notable items’, core cash earnings rose 3% to $9.725 billion
- Total cash earnings excluding notable items fell 6% to $6.57 billion
- Excluding notable items, second half cash earnings rose 12% (compared to the FY22 first half) to $3.47 billion
- Excluding ‘treasury and markets’, the NIM improved from 1.7% in the first half to 1.8% in the second half of FY22
- Stressed assets reduced to 1.07% at Sept 22, down from 1.36% at Sept 21
This financial year showed the impact of low interest rates, particularly in the first half, on its profitability.
However, there was a pleasing increase of profitability in the second half compared to its first half. This bodes well for its underlying earnings in FY23.
Outlook for the Westpac share price
The bank said that it’s not yet seeing increases in hardship or stressed assets. It said that many customers built up savings during the past two years and 68% remain ahead of their mortgage repayments.
But, the bank said “it is inevitable that the impact of higher rates will be felt, including when borrowers’ low fixed-rate loans are rolled over.
It also said that the biggest challenges for authorities is to contain the “high inflation psychology” that is now “taking hold” in the economy.
Westpac also said that, in Australia, consumer spending is “resilient”, but as higher rates “bite”, it expects that the heat will come out of the economy and that inflation pressures will ease.
Final thoughts
Banks are almost definitely going to see their net interest margins – how much profit they make on lending – improve thanks to the higher interest rates. But, an important question will be how much this puts its customer base of borrowers into mortgage stress in future years.
The market already knows that NIMs are going to rise, so I’m not sure that the Westpac share price has big upside from here, though if it can improve its operating performance then that would be useful for shareholders.
