Westpac flags higher expenses in quarterly update; shares drop

Aug 21 (Reuters) – Westpac Banking Corp (WBC.AX) on Monday posted a quarterly cash profit of A$1.8 billion ($1.15 billion), in line with consensus expectations, but flagged an acceleration in its expenses in the quarter, sending its shares down more than 2%.

Shares of Sydney-based Westpac fell about 2.1% to trade at A$20.82 at 0040 GMT, hitting their lowest since July 12.

Australia’s third-largest lender said that its expenses for the second half to date were up 5% from the first half, fuelled by higher supplier costs and staff wages, while also flagging other notable costs during the latter half.

“The Group remains committed to cost discipline with recent cost reset actions driving a full time equivalent employee reduction of approximately 2% for the second half 2023 to date,” Westpac said in a statement.

Consensus estimates had forecast relatively flat costs through the quarter as compared to the first half average, according to Citi.

“We think the market will focus on the underlying miss on costs which will need to be revisited,” analysts from Citi said.

Broadly, Australia’s major banks have all flagged stiff competition in the mortgage space, along with higher expenses as inflationary pressures weigh.

Interest rates in Australia have been raised by 400 basis points since May last year in the most aggressive tightening campaign in modern history, which the banks have passed on to customers.

The higher interest rates have also contributed to increased living costs, which are pushing up debt arrears.

In Australia, loan repayments past 90 days late rose to 0.80% in the three months ended June, up 7 basis points from 0.73% in March, Westpac said.

Earlier this month, Commonwealth Bank of Australia (CBA.AX), the country’s biggest lender, posted a record annual profit but warned of higher living costs impacting margins, while second-biggest lender National Australia Bank (NAB.AX) saw its margins decline in line with the trend.

Westpac did not publish a comparable quarterly net profit figure for the same period a year earlier. The figure reported on Monday was below the A$2 billion average profit for the first two quarters of fiscal 2023.

($1 = 1.5603 Australian dollars)

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