It is pushing forward its cost saving plan
Westpac has pushed forward a restructuring and simplification plan and reorganised its risk function in response to a margin squeeze. The bank expects the tight margins to continue for the remainder of the financial year.
David Stephen, chief risk officer, and Les Vance, head of financial crime, compliance and conduct, are both leaving the bank, according to a report by The Australian. Their roles will be combined and run by Ryan Zanin, who is currently in charge of risk at the Federal National Mortgage Association (Fannie Mae) in New York.
Shares in Westpac rose on Tuesday despite an eight-basis-point drop in the net interest margin (NIM) from 1.99% in the second half of last year to 1.91% in the December quarter, according to The Australian. The gain, up 2.3% to $21.07, reflected low market expectations for the quarterly trading update and better-than-expected progress on Westpac’s plans to cut annual costs to $8 billion by 2024.
The bank announced unaudited cash earnings of $1.58 billion for the three months to Dec. 31, up 1% from the quarterly average of the September half-year, excluding notable items, The Australian reported.
Westpac CEO Peter King said the economy was doing well. Even if the Reserve Bank raised interest rates this year, King said unemployment was low, wages were rising and there was some inflation.
“The risk is that it overshoots, but the RBA has said it’s watching things closely,” King said.
Westpac chief financial officer Michael Rowland said the bank had made a sound start to 2022, and that its ongoing restructure was starting to yield benefits. However, he said the environment was still highly competitive and the pressure on margins was continuing, The Australian reported.
Rowland said that margin pressure meant that Westpac was pushing forward its simplification plans and changing its operating structure to improve efficiency.
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The main factors behind the squeeze on Westpac’s NIM were fierce competition in mortgage and business lending, strong growth in lower-margin fixed-rate mortgages, and increased holdings of expensive liquid assets, The Australian reported. Westpac has also used discounting to jump-start growth in its key franchises and boost its liquid assets.
“We chose to grow in the last few years when competition was increasing because we needed to get the franchise moving again,” King told The Australian.
Westpac has so far achieved a $191 million reduction in expenses, excluding notable items. The bank’s number of full-time equivalent employees fell by 1,100 - 900 of whom were third-party contractors.
King told The Australian that the bank was now implementing a key part of its cost-reduction plan – reducing the size of corporate functions by 20%.
“The changes are primarily across head office and support functions, and not customer-facing roles,” he said.
