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Westpac (ASX:WBC) share price in focus on FY24 Q1 profit drop

The Westpac Banking Corp (ASX: WBC) share price is on watch after the bank announced its FY24 first quarter earnings update.

FY24 first quarter update

Westpac reported that its unaudited net profit after tax (NPAT) was $1.5 billion, which was down 6% compared to the FY23 second-half quarterly average. It achieved $1.8 billion of net profit excluding ‘notable items’, which was flat compared to the FY23 second half.

Westpac said the notable items related solely to ‘hedge accounting’ which will “reverse over time”, which is what drove the 6% decline.

The bank reported a net interest margin (NIM) of 1.78% and a core NIM of 1.8% (down 4 basis points, or 0.04%). The NIM describes how much of an interest margin profit the bank is making comparing its overall lending rate to the rate it’s paying for its funding (eg savings and term deposits).

The NIM was “well managed in light of lending and deposit headwinds”. The NIM excluding notable items only declined by 1 basis point. The core NIM was impacted by mortgage competition. The performance of the NIM and arrears could be influential for the Westpac share price.

Westpac said that pre-provision profit grew by 1%, with both revenue and expenses rising 2%.

The bank said the operating momentum was “positive” with customer deposit growth of $7.9 billion and loan growth of $5.6 billion. This represented system growth of 1.1x in household deposits and 1x in the Australian housing loans. In other words, it maintained market share with its housing lending.

How is the loan book performing?

The bank revealed that it saw a reduction in business stress, but there was a rise in home loans that are overdue by at least 90 days, which “reflects the tougher economic environment.”

It said it remains “focused on helping those customers facing high cost-of-living pressures and making difficult choices to manage household budgets.”

Those trends with credit quality led to impairment charges rising. The charge to average loans increased by 3 basis points (0.03%) to 10 basis points (0.10%), though this remains the long run historical average.

Final thoughts on the Westpac share price

Westpac shares had rallied 6% in 2024 prior to this update. Profit growth was not exactly strong in this update, and arrears are going in the wrong direction.

I wouldn’t say it’s a great buy today – the Westpac share price is higher, yet the profit is flat and the arrears are worsening. There are other ASX dividend shares I’d rather buy.

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