Australian lender Westpac flags Iran war risks as first-half profit misses estimates

By Scott Murdoch and Shivangi Lahiri

May 5 (Reuters) – Australian lender Westpac Banking on Tuesday said its mortgage and business customers are facing pressure from higher energy and fuel prices due to the U.S.-Israeli war on Iran, as it reported a weaker-than-expected first-half profit.

Australia’s second-largest home lender reported A$3.41 billion ($2.44 billion) net profit for the first half that ended on March 31, missing a Visible Alpha consensus estimate of A$3.47 billion, hurt by higher credit impairment charges and weaker treasury income.

Westpac recorded a credit impairment charge of A$443 million, up from A$250 million a year earlier, citing a more cautious economic outlook and a decision to increase its provisioning around energy sector customers.

Chief Executive Anthony Miller said Westpac was well placed to deal with the impact of the Middle East conflict, as it had taken a “prudent approach” to increase its future bad debt provisions. But he warned that higher energy costs globally would be a challenge for all businesses to tackle in the foreseeable future.

“The longer the war goes on there will be more disruption and it becomes more unlikely we get back to something like there was pre-war and there is a permanent adjustment to supply,” he said in an interview.

“That then means every sector either directly or indirectly is impacted by costs that follow from energy prices. It means there’s ongoing change and we’ll all have to calibrate around that change.”

Westpac shares were down 1.1% on Tuesday, while the S&P/ASX200 was off 0.47%. The bank’s stock is down 1.33% so far this year; rivals ANZ Group and National Australia Bank have also fallen into negative territory in the year-to-date period. Australia’s banks are considered among the most expensive in the world following major share price gains in the past two years.

Miller said the Iran war was the latest of a number of major geopolitical events including the COVID-19 pandemic, Donald Trump’s presidency and the Russia-Ukraine war that have created major challenges for global business leaders.

“It feels there’s always been something reasonably noisy and dramatic that you’re having to take notice of,” he said.

“The thing in my mind is to sort of find the balance between, well let’s be thoughtful about what it could mean, let’s work out what we can do about it and then not waste our time on what we can’t do about it.”

Westpac said the bank’s overall credit quality was stable. Its share of stressed loans fell to 1.16% of total exposures, down 20 basis points from a year earlier, while delayed mortgage payments of more than 90 days fell 19 basis points to 0.64%.

Australian housing loans, excluding Westpac’s RAMS portfolio, grew 7% during the first half, while business lending grew a sharp 16%, driven by the property, infrastructure and industrial sectors.

Westpac’s net interest margin, a key measure of profitability, slipped three basis points to 1.89% from 1.92% a year earlier, hurt by lending competition, higher credit impairment charges and lower treasury income.

Its common equity tier 1 ratio, a key measure of spare cash, stood at 12.42% at the end of the first half, compared with 12.24% a year earlier.

The lender declared an interim dividend of 77 Australian cents per share, higher than the 76 Australian cents declared a year earlier.

($1 = 1.3951 Australian dollars)

(Reporting by Shivangi Lahiri & Rajasik Mukherjee in Bengaluru; Editing by Tasim Zahid and Thomas Derpinghaus)