By Roushni Nair
(Reuters) -Australia’s Westpac Banking (NYSE: WBK) Corp on Monday slightly missed expectations while posting a 26% rise in annual profits due to growth across its key markets, though the lender warned challenges in its operating environment would continue into fiscal 2024.
Westpac also said it had started an A$1.5 billion ($975.60 million) share buyback.
The company joins its smaller peer Macquarie Group (OTC: MQBKY), which announced an A$2 billion share buyback on Friday, in wanting to return excess capital to investors, making the two Australian banks look more financially attractive.
The company said it had reaped the benefits of operational improvements and growth in its key markets, including deposits, mortgages and institutional banking.
A rapid surge in interest rates since May last year has benefited Australian lenders’ margins significantly, however, there have been increasing uncertainties on whether interest rates will stay higher for longer and impact the bank’s net interest margin.
For fiscal 2023, the company’s net interest margin was up 2 basis points (bps) to 1.95% due to higher return on capital and a surge in deposit spreads, excluding certain significant items.
Westpac, however, said a tighter loan spread on the back of “intense competition” and an increase in low-returning liquid assets capped gains for its margins during the year.
In its update, Westpac flagged potential headwinds for its revenue in fiscal 2024, blaming the “lagged” effects of lending competition and a “modest” balance sheet growth during the year.
The company also said it expects more pressure on its cost base in fiscal 2024, as the bank foresees persistent inflation as an obstacle.
Even as operating expenses of A$10.69 billion during the financial year were 1% lower, the company said its impairment charges increased to A$648 million in the same period.
Westpac said it intends to lower its cost-to-income ratio in comparison to its peers
“We’re broadly positive about the economic outlook over the next year and Westpac is in a strong position to grow its business and support customers who need help,” Westpac CEO Peter King said.
Westpac, the country’s fourth-largest lender in terms of market value, reported net profit attributable of A$7.20 billion for the year ended Sept. 30, compared with A$5.69 billion last year. That missed an LSEG estimate of A$7.41 billion.
It declared a final dividend of 72 Australian cents per share, up from 64 Australian cents a year earlier.
($1=1.5373 Australian dollars)