Westpac’s profits have swelled, as the country’s second biggest bank benefits from strong growth in its vast mortgage business and low default rates from borrowers.
The bank today delivered an 8 per cent increase in cash earnings to $3.77 billion and announced an interim dividend of 90c a share, up from 86c last year.
The earnings result is ahead of market forecasts for a result of about $6.65 billion, while analysts had been expecting the dividend increase. Contrary to some predictions, the bank did not pay a special dividend as it has in previous halves.
Profits were up strongly across most of its divisions, with double digit growth in every division except for its institutional bank, where earnings fell.
Better credit quality also boosted the bottom line, with impaired assets falling 22 per cent in the year.
BBY analyst Brett Le Mesurier said the bad debt charge was ‘‘extremely low’’ due to good risk selection by the bank and the fact there had not been a credit boom in recent years.
In a reference to rival ANZ – which last week delivered strong dividend growth but has attracted criticism from some for its Asian expansion plans, Mr Le Mesurier, who has a ‘‘buy’’ rating on Westpac, wrote: ‘‘Life is easier when a bank doesn’t have to justify why it’s embarking on a low returning Asian strategy.’’
Chief executive Gail Kelly noted the improvement in credit quality and results across the group, saying it was a ‘‘strong’’ result and she was more optimistic about the economy.
Although households remained cautious, the bank cited signs of stronger spending growth and confidence, and also said there were better signs ahead for the business sector.
“We have recently seen signs of increased customer activity and expect the economy to gradually improve throughout the remainder of 2014,” Mrs Kelly said.
The bank has the strongest capital position of the big four banks, with a tier one capital ratio of 8.82 per cent, and some analysts had expected it would return some of these funds to shareholders via a special dividend.
The bank said one reason it had opted instead for the increase in regular dividends was upcoming regulations that will require banks to hold billions more in capital from the start of 2016.
“We are pleased to continue to provide strong returns directly to our approximately 585,000 shareholders. Today’s dividend represents a payout ratio of 74 per cent, demonstrating our commitment to return a high portion of earnings to our owners,” Mrs Kelly said in a statement.
The dividends - worth about $2.8 billion in total – will be fully franked and will be paid on July 2.
Westpac is the country's second largest mortgage lender behind the CBA, writing one in every four home loans.
It has benefited from a pick up in borrowing fuelled by record low interest rates - with housing pushing credit growth to its quickest pace in five years.
The surge in profits comes after the bank last year said it would seek to start expanding more quickly in mortgage and business lending, having strengthened its funding and capital position.
Westpac shares last week hit a record high $35.99.