Westpac Banking Corporation, one of Australia’s largest banks, has announced its financial results for the year 2023, showing a strong performance despite the challenging economic environment.

The bank also revealed its plans to expand its presence in Queensland, simplify its technology stack, and enhance its digital services for customers.

Financial highlights

The bank reported a net profit of $7.2 billion, up 26% from the previous year, while its pre-provision profit increased by 24%. The bank attributed the growth to strong revenue, well managed costs, and solid loan growth.

The bank’s revenue rose by 10%, driven by higher net interest margins and increased demand for home and business loans. The bank’s net interest margin, a key measure of profitability, improved by 11 basis points to 2.07%.

The bank’s costs declined by 1%, reflecting the benefits of its cost reset program, which aimed to reduce complexity and improve efficiency. However, the bank noted that costs were higher in the second half of the year, and that it took action to limit expense growth going forward.

The bank’s impairment charge, which reflects the expected losses from bad loans, rose to 9 basis points of loans, up from 6 basis points in 2022. The bank said that this reflected a modest deterioration in credit quality, mainly due to the impact of higher interest rates on some customers.

The bank’s return on equity, a measure of how well it uses its capital, improved by 2.5 percentage points to 10.8%. The bank’s common equity tier 1 ratio, a measure of its financial strength, remained stable at 10.8%, above the regulatory minimum of 10.5%.

The bank’s board declared a final dividend of 80 cents per share, bringing the total dividend for the year to 142 cents per share, up 14% from 2022. This represented a payout ratio of 69% of net profit, within the bank’s target range of 60-70%.

Strategy and service

The bank’s CEO, Peter King, said that the bank had become a simpler and stronger bank after three years of hard work. He said that the bank had completed its portfolio simplification, winding down its Specialist Business Division, and reorganising its operating structure into four divisions: Consumer, Business & Wealth, Institutional, and New Zealand. He said that these divisions were supported by centralised Technology and Operations functions.

He also said that the bank was expanding in Queensland, with its Gold Coast technology hub, housing over 100 engineers working on its award-winning digital app. He said that the Westpac app was recognised by Forrester as the best banking app in Australia, offering customers a range of features and functionalities.

He highlighted some of the bank’s innovations for business customers, such as EFTPOS Air, which allows customers to use their phone as a payment terminal and get paid the same day. He said that the bank was extending this capability to multi devices, so that the service can be used by larger businesses.

He also said that the bank was making progress in its Institutional banking division, reclaiming its position as the leading domestic bank. He said that the bank’s financial markets business ranked first in several key product categories, such as government and semi-government bonds issuance, with a market share of 20%. He also said that the bank had seen momentum in both lending and transactional banking.

He emphasised that risk management was at the heart of everything the bank did, and that the bank had made good progress on improving its risk management capabilities. He said that the bank’s Customer Outcomes and Risk Excellence (CORE) program was in its third year, and that the bank’s focus in 2024 would be to ensure that the changes were embedded across the business. He said that the CORE program remained a top priority for the company.

He also said that another priority for the bank was to fight back against scammers, by scaling up its efforts to detect and halt scams, and by adding new features to make payments safer. He said that the bank had introduced a number of measures, such as SMS verification codes, payment alerts, and scam warnings, to protect customers from fraud.

He acknowledged that banking was changing, especially with the shift to digital. He said that 96% of the bank’s transactions were now digital, and that customers were using branches less. However, he said that access to cash remained important, and that the bank had bolstered its physical presence in several ways. He said that customers could now make cash transactions in any branch across any Group brand, that the bank had entered a new ten-year agreement with Australia Post, which provided access to over 3,400 sites across Australia, and that the bank was providing access to approximately 7,000 fee-free ATMs Australia-wide.

Future

In conclusion, King said that Westpac was well placed for the future. He said that the bank was entering 2024 in a strong financial position, ready to navigate slower economic growth, some revenue headwinds, and higher costs.

He said that the bank would strive to make banking easier, more intuitive, and digital for customers, and that accelerating the simplification of processes and technology was key to achieving these outcomes. He said that the bank intended to reduce the size of its technology stack by two thirds, with the aim of lifting service and productivity, growing in its key markets, and improving returns.

He also thanked the bank’s departing CFO, Michael Rowland, for his contribution to the bank, and welcomed the bank’s incoming CFO, David Stephen, who would join the bank in January 2024. He also thanked the bank’s staff, customers, shareholders, and regulators for their support and trust. He said that he looked forward to working with them in the year ahead.

Fitch revises outlook on Westpac Banking Corporation to stable