The Westpac Banking Corp (ASX: WBC) share price is under the spotlight after releasing its FY25 first quarter update.
Westpac FY25 Q1 result
The ASX bank share reported that it generated $1.7 billion of net profit, down 9% compared to the second half of FY24‘s quarterly average. Excluding notable items, Westpac’s net profit was $1.9 billion – up 3% on the quarterly average of the second half of FY24.
Westpac said its reported net interest margin (NIM) was 1.82%, while the core NIM was 1.81%, down 2 basis points (0.02%) compared to the second half of FY24. The NIM shows how much profit banks are making on their lending. The core NIM excludes notable items, as well as treasury and markets. A strong NIM is important for the Westpac share price.
What caused these numbers?
Westpac said the modest decline reflected prudent management in the context of ongoing mortgage competition and a further deposit mix shift towards “lower spread savings” and term deposits. Higher earnings on capital and hedged deposits partly offset these impacts.
The ASX bank share reported that excluding notable items, pre-provision profit grew 3%, with revenue increasing 2% and expenses growing 1%. This is one of the best measures of its underlying performance.
Excluding notable items, net interest income increased 1% with average interest earning assets up 1% and the small decline in NIM.
Westpac said the operating momentum was “pleasing”, with customer deposit growth of $14.4 billion, loan growth of 3% and institutional loan growth of 6%.
The ASX bank share explained that the notable items were from “unrealised fair value losses related to economic hedges of term funding” detracted 12 basis points (0.12%). Westpac said these items reverse over time.
Expenses grew 1% because of wage and salary growth, partly offset by seasonally lower investment spending. Annual wage rises apply from 1 January 2025 and UNITE investment is expected to ramp-up.
Impairment charges to its average loan balance was 5 basis points (0.05%), up from (0.04%), “remain low and reflect continued resilience by customers.”
Is the Westpac share price a buy?
The ASX bank share has soared more than 30% in the past year, it certainly doesn’t seem cheap for a business growing underlying profit at a slow pace.
It’s doing better than I expected, but I wouldn’t want to jump on it at this valuation. There are other ASX dividend shares that could be better buys.
