Bad Loans Fail To Halt Westpac's Progress
Sydney Morning Herald
Saturday May 5, 2001
A sharp rise in bad loans has hit Westpac Banking Corp's profit for the March half but the bank has dismissed suggestions a bigger problem lies ahead.
Cost-cutting and surging volumes of mortgage and credit card lending more than compensated for the 200 per cent rise in its bad debt charge, helping the bank to report a 13 per cent rise in interim net profit to $924 million, slightly less than the market expected.
The 30c fully franked interim dividend, up 4c, is payable July 6. Westpac shares fell 21c to $12.82, underperforming its rivals.
Chief executive Dr David Morgan said the increased bad debt charge was more a reflection of ``dynamic provisioning", where the bank estimates likely bad debts, than actual losses.
Dr Morgan said he did not expect a major recession in the next nine months, beyond which it was too difficult to forecast. Subject to the changes in the economy, Westpac would report double-digit earnings per share growth for the full year, he said.
The bad debt charge jumped from $59 million to $176 million. Total impaired assets still represent only 0.6 per cent of the total loan book.
The provisioning included the bank's estimate of losses on the $245 million secured exposure to HIH Insurance, which is in provisional liquidation.
Another dampener on the result was a $7.5 million writedown to the bank's$45 million in e-procurement technology company Metiom.
Westpac's heavy emphasis on outsourcing and staff cuts saw the bank's cost-to-income ratio fall markedly, from 55.5 per cent to 52.2 per cent.
Dr Morgan renewed his commitment to organic growth. Westpac's recent decision to put its share buyback on hold has raised speculation that an acquisition is in the wings.
But the bank would be keen to look at some of Bank of Hawaii's Asia-Pacific interests on the market. Dr Morgan denied Westpac was looking at buying insurance company Tower or intending to outsource its fund management ``manufacturing" to ING.
BNP Investment Management's fund manager, Mr Greg Dearden, said Westpac was constrained by a lack of company-transforming acquisitions but was not trading at a demanding price/earnings ratio and credit quality was not a big issue.
The bank's interest margin was aided by rate cuts, as money market rates lowered the cost of funding before official cuts. The net interest spread rose from 2.6 per cent to 2.7 per cent.
© 2001 Sydney Morning Herald