The Westpac Banking Corp (ASX: WBC) share price is under the spotlight after the major ASX bank share released its FY23 report.
WBC share price
FY23 result
Here are the numbers for the 12 months to September 2023:
- Net interest income grew 7% to $18.3 billion
- Core net interest margin (NIM) increased 12 basis points (0.12%) to 1.87%
- Impairment charges increased to $646 million
- Net profit after tax (NPAT) up 26% to $7.2 billion
- Return on equity (ROE) of 10.1%, up 199 basis points (1.99%)
- Final dividend of $0.72 per share, up 12.5%
- Full year dividend of $1.42, up 14% year on year
The NIM describes the profit a bank makes between the ‘cost’ of money (eg a savings account rate) and the revenue of lending that money (eg a mortgage rate).
Looking at the main individual segments, Westpac’s consumer division saw profit fall 7% to $3.05 billion with the margin falling 7 basis points (0.07%) and expenses rising 6%. Net loans increased 4% and deposits went up 10%. The performance of this division will be key, as it usually is, for the Westpac share price going forward. How will households perform with these higher interest rates?
In the ‘business’ segment, profit jumped 77% to $1.6 billion thanks to an improved margin and a cost reduction of 1%. Net loans increased 5% with growth in agriculture, commercial property and diversified sectors.
The institutional bank experienced a 54% rise in profit to $1.06 billion thanks to revenue growth of 28% and cost growth of 11%. Loans increased 9% with “strong growth” in financial markets income.
New Zealand profit sank 18% to A$887 million – revenue only increased 2%, yet costs increased 12%.
Share buyback and balance sheet
The business ended the financial year with a good level of capital on its balance sheet, with a CET1 capital ratio of 12.4% at September 2023, up 109 basis points (1.09%) on FY22.
The board has decided to send some of the excess capital back to shareholders, with a share buyback of $1.5 billion.
Outlook for the Westpac share price
The bank said that more customers are calling, though it is not yet seeing a significant increase in customers falling behind on repayments.
Westpac said that in Australia, employment and productivity are key measures to watch. It suggested that the jobs market will be tested through 2024. Consumer sentiment remains “weak” but there are “glimmers of hope with some cost pressures starting to ease for businesses.”
The bank said that it’s “broadly positive” about the economic outlook over the next year and Westpac is in a “strong position to grow its business”.
It’s a curious situation. Australians are meant to be some of the most indebted in the world, and interest rates have soared, but Westpac is saying that on average people are still coping/keeping their heads above water. Of course, there is some pain for some, and for other people with large cash balances they are now getting a lot of extra income.
At the pre-open Westpac share price, the FY23 fully franked yield is 6.6%, which is big yield when we include the franking credits, taking it to 9.4%.
It’ll be interesting to see if this is peak profit for Westpac, or whether its margins and relatively low bad debts can be maintained. There are other ASX dividend shares I’d rather invest in which are smaller businesses and may be able to deliver solid long-term growth.
