Lender on track to post $8 billion profit

A major Australian bank has revealed that it will likely report a statutory net profit of $8.012 billion when it announces its full-year results in November.

Westpac Bank yesterday released its preliminary full-year 2015 result highlights, which showed cash earnings of $7.820 billion, up three per cent.

Australian banking, including Westpac and St. George, increased cash earnings by eight per cent.

Lending for the group was up seven per cent and customer deposits rose four per cent. A net interest margin of 2.08 per cent was unchanged over the year.

Westpac CEO Brian Hartzer said the result was driven by a solid operating performance, supported by strong gains in customer numbers.

The preliminary results coincided with Westpac’s announcement of a $3.5 billion share entitlement offer and 20-basis-point rate hike on its variable home loans for both owner-occupiers and investors.

George Frazis, chief executive, consumer bank at Westpac, acknowledged that “a significant increase in capital ultimately increases the cost of providing home loans to customers”.

“This is a difficult decision and one that is not taken lightly. We acknowledge that it does impact customers, even in an environment where interest rates remain near historic lows. We have sought to carefully balance the needs of our borrowers, depositors and our shareholders, as well as the competitive market we operate in,” Mr Frazis said.

“Increases in the cost of doing business inevitably influence business decisions, including price.”

Commenting on Westpac’s decision to lift mortgage rates, AMP Capital chief economist Shane Oliver said the major bank’s announcement is not particularly surprising as it flows from the rise in the cost of funding that comes from higher capital requirements being imposed on the banks.

“Other banks may follow,” Mr Oliver said, adding that, with Australia’s economic growth stuck around two per cent and the mining investment downturn only about half way through, “the last thing the economy needs now is a rate hike for the 30 to 40 per cent of households who have a mortgage given the threat it will pose to consumer spending.”

“The best way to avoid this is for the RBA to cut the official cash rate in order to offset the higher funding costs the banks now face.

“This may mean that there is only around a 0.05 per cent pass through to mortgage holders from the banks (depending on what other banks choose to do) but it’s still better than a rate hike.”

Mr Oliver said a November (Melbourne Cup Day) rate cut is looking more likely. “If not then, then early next year,” he said.

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