Westpac earnings bolstered by rate hikes

In a market update for the first quarter of 2019 (1Q19), Westpac has reported an unaudited statutory net profit for the December quarter 2018 of $1.95 billion, broadly in line with the quarterly average of the second half of 2018. 

Westpac’s unaudited cash earnings rose, however, to $2.04 billion, compared to the quarterly average of 2H18 of $1.91 billion.

According to the major bank, its out-of-cycle mortgage rate changes helped lift its net interest margin.

In August 2018, Westpac increased its interest rates on variable home loan products by 14 basis points, which the bank attributed to a rise in wholesale funding costs.

Westpac was the first lender to lift its rates out of cycle, with ANZ, the Commonwealth Bank, and NAB later following suit.  

Westpac’s market update has also revealed that the bank posted owner-occupied home lending growth of 5.2 per cent in 1Q19, a slight improvement from owner-occupied growth of 5.1 per cent in 1Q18.

Investor lending growth declined sharply, however, from 4.8 per cent in 1Q18 to 0.8 per cent in 1Q19.

Interest-only loans make up 32 per cent of Westpac’s home loan portfolio, with 16 per cent set to expire over the coming year.

Westpac has also reported that over 30-day delinquencies underlying Westpac’s mortgage portfolio increased over the quarter to 31 December 2018, from 1.40 per cent to 1.46 per cent, with over 90-day arrears rising by 4 basis points from 0.72 per cent to 0.76 per cent.

When compared to 1Q18, Westpac’s over 30-day arrears increased by 11 basis points from 1.35 per cent, with over 90-day arrears rising by 9 basis points from 0.67 per cent.

Westpac’s half-year 2019 results are expected to be released on 6 May 2019.

The market update follows the news that the Australian Securities and Investments Commission (ASIC) has appealed the federal fourt’s decision regarding legal breaches by Westpac subsidiaries Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BT Funds).

The federal court found WSAL and BT Funds breached the Corporations Act (section 912A(1)(a)) but that ASIC did not make out its case that “personal advice” was provided to 15 customers.

ASIC has said that its decision to appeal the federal court’s decision reflects its desire to “obtain further clarity and certainty” concerning the difference between general and personal advice for consumers and financial services providers.

[Related: AMP profits shrink by $820min 2018]