Banking News

Consistency and discipline earn high profits

(6 May 2013 – Australia) Westpac Chief Executive Gail Kelly attributed the bank’s 10 percent jump in first-half profits to "the benefits of consistency and discipline in the execution of our strategy".

The result exceeded analyst expectations, recording a record A$3.525 billion, higher than the predicted A$3.41 billion.

"Momentum continued to build over the period, with all our Australian businesses producing double-digit cash earnings growth compared to the same period last year," Kelly said.

Shares in Westpac have continued to set record highs since rival ANZ on Tuesday reported its own strong result and juicy dividend – reinforcing expectations of peak profits for banks and what are seen as safe and high-yielding shares. Its market capitalisation has followed Commonwealth Bank's into the A$100 billion territory.

Despite profits also heading into record territory, Kelly said the "operating environment continues to be challenging, with subdued lending growth", a view the big four banks maintain as they seek to justify not passing on the Reserve Bank of Australia (RBA)’s official rate cuts in full.

It also warned the banking industry continued to "undergo structural change".

"In particular, credit growth is expected to remain relatively modest, regulatory demands and costs continue to increase and there is a significant shift in customer behaviour as the market responds to digital innovation," it said.

Kelly defended the bank's recent track record of not passing on RBA interest rate cuts in full, insisting the banking sector was still doing it tough despite reporting record profits and a bumper dividend.

Kelly said the banks were operating in a "challenging" environment, and that there were "a number of breaks" in the economy, with consumers cautious, business confidence lacklustre, and lending growth subdued.

"Ask anyone of my management team here and they'll tell you it feels pretty tough in the business every single day in the slow-growth arena."

Mrs Kelly rejected suggestions Westpac was sacrificing the interests of its mortgage customers to subsidise its push for more retail business, including through higher term deposit rates.

"We seek to balance the needs of all of our different stakeholders in the way we actually run our business," she said.

"You need to be a strong bank if you're going to be able to support your customers, and support the economy that you operate in."

"I think that we're fortunate in this economy that we do have a strong banking sector. That's the first priority."