Westpac Banking Corporation

WBC Details

Westpac Banking Corporation (ASX: WBC) is one of four major banking organizations in Australia and one of the largest banks in New Zealand. The company offers a spectrum of consumer, business, and institutional banking and wealth management services.

Results Performance for the Year Ended 30 September 2021 (FY21)

• The net profit stood at $5,458 million in FY21, up 138% YoY, primarily due to credit impairment benefit of $590 million in FY21 versus a charge of $3,178 million in FY20.
• Net interest income increased $162 million over FY20, indicating a 3bps increase in net interest margin (to 2.06%) partly nullified by a slight decrease in average interest-earning assets of $2.3 billion (down less than 1%).
• The company determined a final dividend of 60 cents per ordinary share, resulting in full-year ordinary dividends of $1.18 and indicates a payout ratio of 79.25% in FY21. Accordingly, the full-year ordinary dividend is fully franked.

Source: Company Reports, Analysis by Kalkine Group

Key Update:

• On 3 December 2021, the company noted APRA’s announcement concerning the loss-absorbing capacity of Authorised Deposit taking Institutions (ADIs). This has been raised to 4.5% of RWAs, a 1.5% increase on the prior announcement, to be met by D-SIBs by 1 January 2026. The company plans to meet this requirement via the issuance of Tier 2 Capital primarily, with a corresponding fall in senior debt issuance.
• On 3 December 2021, the company released Westpac New Zealand Banking Group disclosure statement for FY21, where net interest income improved to $2,058 million in FY21 versus $1,893 million in FY20. Net profit attributable to the shareholders of NZ Banking Group stood at $1,057 million in FY21 versus $681 million in FY20
• As per the release dated 1 December 2021, the Australian Securities, and Investments Commission (ASIC) has initiated a legal proceeding against Westpac for compliance letdowns. The bank faces six civil penalty proceedings related to its banking, superannuation, wealth management businesses, and general insurance business. Moreover, the bank has admitted the allegations and agreed to pay a penalty of A$113 million ($80.6 million). As per the ASIC Deputy Chair Sarah Court, “the conduct and breaches alleged in these proceedings caused widespread consumer harm and ranged across Westpac's everyday banking, financial advice, superannuation and insurance businesses." (Source: REFINITIV NewsRoom).

Outlook:

The company is planning to expand its lending portfolio in line with peers, leveraging the momentum indicated in the last year. Further, the growth in FY22 will be driven by the economic revival in Australia and New Zealand. Also, the net interest margins are forecasted to reduce further in the year ahead. In addition, the company is working on the sale of businesses in the Specialist Businesses sphere. In 2022, the company forecasts additional resources to simplify and perform strategic priorities like other business sales, digitise more processes, and streamline operations. The company estimates the Australian economy to grow by 7.4% in FY22, with credit growth expanding 6.8%, where demand for housing is expected to remain high. In comparison, the home price could moderate to 8% in FY22.

Key Risks:

The financial condition and operating results of the Group are affected by the number of critical financial and non-financial risks. Financial risks include market risk, credit risk, financing, and liquidity risk. The non-financial risks include insurance risk, compliance risk, and operational risk. In addition, the Bank is exposed to compliance risks, which are exacerbated by the growing complexity and volume of regulation, including misunderstanding of obligations and rights of regulators or a Court, tribunal, or other body.  

Stock Information:

The company has delivered a 6-month and 1-year return of ~-20.64% and ~+4.62%, respectively. In addition, the stock is trading below the average of the 52-week high price of $27.12 and the 52-week low price of $19.23.

The stock of the company closed at $21.07 per share, up by 0.572% as of 8^th December 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Disclosure: Kalkine’s Director Kunal Sawhney owns shares of Westpac Banking Corporation. Kalkine Pty Ltd has recommended Westpac Banking Corporation as general investment advice only (under AFSL 425376).

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