Westpac Faces Margin Squeeze but Strengthens Capital and Customer Focus

Solid Financial Performance Amidst Economic Challenges

Westpac Banking Corporation has reported a robust start to fiscal 2025, posting an unaudited net profit of $1.7 billion for the first quarter ended 31 December 2024. While this figure reflects a 9% decline compared to the second half of 2024’s quarterly average, the bank highlights that this was driven by notable hedge accounting items that are expected to reverse over time. Excluding these items, net profit actually rose 3% to $1.9 billion, underscoring underlying operational strength.

The bank’s net interest margin (NIM) slightly contracted by 2 basis points to 1.82%, influenced by ongoing mortgage competition and a shift in deposit mix towards lower-yielding savings and term deposits. However, higher earnings on capital and hedged deposits helped offset some of these pressures.

Loan and Deposit Growth Drive Momentum

Westpac’s balance sheet showed encouraging momentum with customer deposits increasing by $14.4 billion and loan growth of $13.4 billion. This growth was broad-based, including a 2% rise in Australian housing loans (excluding RAMS), 3% growth in business loans, and a notable 6% increase in institutional loans. These figures reflect the bank’s continued focus on expanding its lending footprint despite a challenging economic backdrop marked by high interest rates and cost-of-living pressures.

Chief Executive Officer Anthony Miller emphasised the bank’s commitment to enhancing customer service and safety. Initiatives include the recruitment of 200 additional small business bankers by 2027, rollout of digital financial management tools for businesses, new offset account offerings, and enhanced fraud and scam protection measures. Westpac also reaffirmed its position as the primary banking partner to the New South Wales Government, reinforcing its leadership in the public sector banking space.

Capital Position and Strategic Appointments

Westpac’s Common Equity Tier 1 (CET1) capital ratio stood at a healthy 11.9%, comfortably above its target operating range of 11.0% to 11.5%. The slight 62 basis point decline from the previous quarter was attributed to dividend payments and increased risk-weighted assets from loan growth and interest rate risk in the banking book. The bank’s liquidity coverage ratio and net stable funding ratio remain well above regulatory minimums, reflecting prudent financial management.

In a strategic move, Fiona Wild has been appointed as Chief Sustainability Officer, reporting directly to the CEO. This appointment signals Westpac’s intent to deepen its focus on sustainability and responsible banking practices amid growing stakeholder expectations.

Looking Ahead: Navigating Economic Uncertainty

Westpac acknowledges ongoing challenges from cost-of-living pressures and elevated interest rates impacting customers and businesses alike. However, with inflation easing and the Reserve Bank of Australia potentially reducing the cash rate imminently, the bank anticipates some relief for households and a gradual boost to business activity. Westpac encourages customers to engage proactively if they require financial assistance.

Overall, Westpac’s 1Q25 update paints a picture of resilience and strategic progress, balancing cautious optimism with a clear focus on customer-centric innovation and financial strength.