Westpac CEO supports further rate hikes as bank reports 26% net profit increase

Westpac’s CEO, Peter King, has expressed support for additional interest rate hikes, following a robust economy and a significant profit increase. This comes despite an increase in consumers entering financial hardship arrangements, but with no significant rise in late repayments. As of today, Westpac’s net profits have seen a substantial 26% rise, reaching $7.2 billion in FY23. This financial boost has facilitated a $1.5 billion share buyback and a 28% dividend hike for shareholders.

In the wake of the Reserve Bank of Australia’s (RBA) cash rate elevation from 0.1% in May 2022, Australian banks reported record cash earnings of $17.1 billion during the first half of 2023, according to a PwC report. This resulted in an increased Net Interest Margin (NIM).

The Australian Competition and Consumer Commission (ACCC), under the directive of the Albanese Government, is currently investigating the disparity in rate increases between deposits and home loans. ANZ stands as the only major bank to have aligned its home loan rate cut with the RBA’s rate cuts, putting the retail deposit market under scrutiny.

On Monday, Peter King demonstrated optimism about infrastructure demand and energy transition. He also voiced support for immigration as an economic stimulant, despite potential prolongation of high inflation and interest rates. Westpac revealed that two-thirds of its home loan customers are ahead on repayments with offset balances amounting to $57 billion. This indicates that borrowers have created financial buffers in their loans and offset accounts to mitigate the impact of rate rises.

In contrast to Westpac, banks like CBA and Macquarie have seen significant share price increases. Despite Westpac’s share price falling from $30 to $21.92 over five years, King remains hopeful that Bullock will prove to be an exceptional RBA leader and expert in managing interest rates.

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