Westpac has reported a flat full-year cash profit of $7.822 billion and lowered its target for return on equity, saying 15 per cent was no longer realistic in a low-interest rate environment.
The lender held its final dividend steady at a fully franked 94 cents after cash profit for the 12 months to September 30 rose just $2 million from the previous year.
But cash return on equity (ROE) dropped from 15.85 per cent to 14 per cent, which chief executive Brian Hartzer said would now represent the upper range of the bank’s revised target.
“Given the current operating environment, including the expectation that low interest rates will continue for some time, the evolving regulations for capital and liquidity, and higher regulatory and compliance costs, the current 15 per cent ROE target for the group as a whole is no longer realistic,” Mr Hartzer said on Monday in a statement.
“Westpac believes in maintaining strong return disciplines and will be seeking to achieve a ROE in the range of 13 per cent to 14 per cent in the medium term.”
Westpac’s earnings per share also dropped following the issue of new shares in November to meet stronger capital requirements.
Net interest income rose 6.2 per cent to $15.148 billion but net profit, which includes one-off items, sank 7.1 per cent to $7.445 billion after a 49 per cent rise in impairment charges mostly related to first-half downgrades of institutional exposures.
The bank said stressed exposures rose 0.21 percentage points to 1.20 per cent, reflecting low NZ dairy prices and the continuing fallout of the end of the mining boom, while Australian mortgages overdue by 90 days or more increased from 0.45 to 0.66 per cent.
“Growth in WA and Queensland, which rely more heavily on resources, will continue to be below trend,” Mr Hartzer said.
“In addition, the international outlook has softened over the year, with growth in China continuing to slow and uncertain economic conditions in Europe.”
Westpac’s 2016 figures
- Cash profit flat at $7.822b
- Net profit down 7.1 per cent to $7.445b
- Net interest income up 6.2 per cent to $15.148b
- Final dividend unchanged at 94 cents, fully franked