The Westpac Banking Corp (ASX: WBC) share price is in the spotlight after the bank announced its FY23 half-year result and interim dividend.
Westpac is one of the biggest banks on the ASX and has announced a very large profit.
FY23 half-year result
Here are some of the highlights from the numbers for the six months to 31 March 2023:
- Net profit after tax (NPAT) grew by 22% to $4 billion
- Profit / earnings per share (EPS) went up 26% to $1.14
- Dividend per share increased by 15% to $0.70
- Net interest margin (NIM) increased by 5 basis points (0.05%) to 1.96% year over year
- Common equity tier 1 (CET) capital ratio of 12.3%, up 99 basis points
The bank reported that, excluding notable items, revenue increased by 7% to $10.87 billion while expenses dropped 1% to $4.99 billion.
The NIM is very important because it shows what profit a bank is making on its lending, comparing the cost (eg savings accounts) to the lending (eg mortgages).
Westpac’s core NIM, excluding treasury and markets, rose by 20 basis points (0.20%) year on year and 10 basis points (0.10%) half on half thanks to the higher interest rate environment.
The bank said that it’s moving away from its FY24 absolute cost reduction target, but it’s focused on improving its cost to income ratio relative to peers. It’s expecting lower costs from benefits of a simpler organisational structure, reduced use of third party service providers and lower remediation costs. But, during the period, it has absorbed inflation from wages and third party vendor costs.
Outlook for the Westpac share price
The bank said that its loan portfolios remain “healthy”, with many mortgage customers ahead on repayments and mortgage arrear levels remaining “low”.
It’s expecting to see more financial stress for households, and particularly for small business.
Westpac pointed out that the Australian economy remains “resilient” with low unemployment and high population growth. The ASX bank share is expecting the economy to slow over the rest of 2023, with housing and business credit growth easing.
It said that “intense mortgage competition is expected to negatively impact industry and Westpac’s margins in the next half”.
Westpac dividend
The bank’s $0.70 dividend per share is healthy. If it paid another $0.70 per share in six months, that would be $1.40. That would be a dividend yield of 6.5%, or 9.4% when including the franking credits at the pre-open Westpac share price.
It could be a big dividend payer in the years ahead, but I don’t think it’s going to achieve a lot of capital growth because of all the mortgage competition, so I’m not looking to buy it for my own portfolio.
