Chief executive blames tighter competition, low-rate environment for disappointing full year results
Westpac shares plunged on Monday as the company revealed smaller profit margins and rising costs amid pressure from a low interest rate environment and tighter competition.
The lending giant reported cash earnings of $5.35 billion for FY2020-2021 – a 105% increase from last year, but still below what analysts had expected.
“Margins were down in a competitive, low-rate environment, and as we foreshadowed, costs were much higher in FY21,” said Peter King, chief executive officer of Westpac. “Our underlying results are not where we want them to be, and we recognise we have more to do to become the high-performing company we aspire to be.”
Adverse market reaction to the financial results caused Westpac shares to plunge by more than 6%, even as the bank also unveiled a $3.5 billion share buyback program.
Hugh Dive, chief investment officer of Atlas Funds Management, told The Age that the bank’s costs were among the biggest concerns for investors.
“What the market is not believing is that the expenses can be brought down,” Dive told The Age.
However, King was still optimistic about the bank’s ability to pare down its cost base to $8 billion by the 2024 financial year.
“We announced our cost reset program this year – targeting an $8 billion cost base by FY24 – and this is underway, led initially by divestments and simplification of our operations,” said King.
King also said that he expected loan growth “to be sound as the economy rebounds, although net interest margins will remain under pressure from low interest rates and competition.”
“We are also committed to resolving a number of outstanding regulatory issues where our actions were not good enough,” he said. “We are making progress in strengthening risk management, growing our core franchise, and simplifying the bank, which provides a strong platform to deliver a better service to customers, as well as returns for shareholders.”
