Westpac posts record $3.5bn profit

CEO of Westpac, Gail Kelly at a branch on Collins St in Melbourne. Picture: Aaron Francis Source: The Courier-Mail

WESTPAC bank boss Gail Kelly has dampened the prospect of an out-of-cycle interest rate cut blaming the higher cost of deposits for keeping the cost of funding high after posting an 10 per cent lift in its first-half cash profits to $3.52 billion.

Instead the strong balance sheet will be used to reward shareholders with a special 10c dividend payout.

Ms Kelly said she would like to pick-up some mortgage market share but admits that customer deposits are growing at a much faster rate and remain a more dominant part of the business with Westpac advertising the highest standard variable rate of the Big Four banks.

"Wholesale funding costs eased in the last six months but retail deposits continue to grow and are a bigger part of our funding mix,'' she said.

Despite concerns about weak business and consumer confidence levels, Ms Kelly is upbeat the about the economic outlook and expects a bounce back in the business sector in 2014. The bank's key cash earnings for the half were up 10 per cent to $3.52 billion on the same time last year as a result of disciplined management of the balance sheet. And Westpac's net interest margin - the difference between interest earned and paid out - was up two basis points to 2.19 per cent.

Morningstar banking analyst David Ellis said it is hard to fault the strong result which exceeded market expectations.

"Robust top line revenue growth and sharply lower bad debts boosted the first half cash profit and the earnings performance confirms our long held argument the major banks can deliver attractive profit and dividend growth despite only moderate loan growth,'' he said.

Westpac will pay its shareholders a fully-franked interim dividend of 86c per share, up four cents per share on the previous corresponding period. The bank has also agreed to pay its shareholders a special dividend of 10 cents per share.

Ms Kelly said the result showed the benefits of the bank's strategy to target high growth opportunities in the sector.

"The operating environment continues to be challenging, with subdued lending growth," she said. "However, in line with our strategy, we are actively targeting opportunities in higher growth areas where conditions are more favourable such as deposits, wealth, trade finance and natural resources."

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