Westpac does not expect conditions in the banking sector to improve any time soon, but says it is in good shape to deliver sound returns for shareholders.
Chairman Lindsay Maxsted told shareholders at Westpac's annual meeting this morning that operating conditions remained challenging.
However the bank did not expect conditions to be any more difficult than in recent years.
"Indeed, given the material strengthening of the balance sheet we are in excellent shape to positively respond to whatever emerges in the external environment," Mr Maxsted said.
Mr Maxsted also defended the bank’s position on mortgage rates, saying that passing on official rate cuts in full would force other customers or shareholders to ‘‘subsidise’’ people with home loans.
Mr Maxsted said changes in the cash rate were only one influence on its cost of funds.
When the bank decided whether to pass on Reserve Bank official changes to shareholders, it had to weigh up the competing interests of borrowers, savers and investors, he said.
‘‘We look to see if we are to pass on 25 basis points... then someone has to pay for that. And that person to pay for it will be the shareholder, or the person will be someone else in terms of all the depositors in this room,’’ Mr Maxsted said.
‘‘Or it might be a business customer, so we have to subsidise a mortgage holder via a business customer.’’
Westpac, the Commonwealth Bank and NAB all passed on 0.2 percentage points of last week’s 0.25 percentage point reduction in official interest rates, blaming the increased cost of deposits.
ANZ will make its decision on mortgage rates tomorrow.
Mr Maxsted did not give guidance for the year, but said the company was ‘‘well placed’’ to for a challenging growth outlook.
Last financial year, Westpac’s cash earnings rose 5 per cent to $6.6 billion. But return on equity, often regarded as the most pure measure of shareholder returns, dipped slightly to 15.5 per cent.
Chief executive Gail Kelly said the bank would aim to keep its return on equity above 15 per cent.
The fall was a result of a significant tax benefit in the previous year related to Westpac’s integration of St George, a benefit that was not repeated in fiscal 2012.
Mr Maxsted reiterated to shareholders his concerns about calls for Australian banks to hold more capital.
He said he was already on the record as saying that while such calls may have been relevant five years ago, they were not applicable today.
He warned that excessive regulation of capital would risk placing Australian banks at a disadvantage against their international peers and could limit the financial resources available to support the economy.
‘‘On any comparable measure the Australian banks are strong and very well capitalised - indeed Westpac’s capital ratios place the group in the upper ranks of banks globally,’’ he said.
‘‘It is hard to argue that as a sector we are undercapitalised.’’
In early trade this morning, Westpac’s shares were six cents higher - 0.2 per cent - at $25.96.
Clancy Yeates with AAP