Westpac changes cost-cutting target as profits fall to $5.3b

Westpac has revised a cost-cutting target by $600 million because of high inflation and the tight labour market, as the bank’s full-year cash earnings eased to $5.3 billion.

The banking giant on Monday reported cash earnings that were weighed down by $1.3 billion in charges that it had previously announced, including a $1.1 billion loss on the sale of a life insurance business. Cash earnings of $5.3 billion were 1 per cent lower than last year.

But excluding these “notable items,” the bank said its core earnings were up 12 per cent, and its net interest income had risen 7 per cent. Market analysts had expected cash earnings of about $5.4 billion.

Chief executive Peter King has been seeking to rein in costs at the Sydney-based lender after a period of poor performance, and the CEO said during the year it had cut its expenses by 7 per cent, including reducing the number of full-time employees by 2,667.

At the same time, the bank changed a previous commitment to get its cost base to $8 billion by 2024, because of higher-than-expected inflation. It is now targeting a cost base of $8.6 billion.

King said it was a “solid” financial result, citing growth in its home loan and business lending book, as well as moves to cut expenses, which have included moves to remove products and merge branches in nearby locations. The bank’s mortgage portfolio grew by 2 per cent in the September half to $467 billion.

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“Westpac returned to growth in our key segments of Australian mortgages and business lending. In the second half, our banking divisions delivered strong growth in core earnings on the back of good cost and margin management,” King said.

The bank’s net interest margin, which compares funding costs with what the bank charges for loans, increased from 1.8 per cent to 1.9 per cent during the September half. The proportion of stressed loans fell from 1.1 per cent to 1.07 per cent of the bank’s portfolio in the September half.