Westpac suspends dividend as profits plunge 70 per cent
Westpac has suspended its first-half dividend, after its cash profit plunged 70 per cent to $993 million due to heavy charges for bad debts and last year's money laundering scandal.
The lending giant on Monday joined rival ANZ Bank in saying its had deferred a decision on its first-half dividend due to uncertainty about the outlook, as profits were battered by provisions for soured loans caused by the coronavirus pandemic.
"This is the most difficult result Westpac has seen in many years": Westpac CEO Peter King.Credit:Peter Braig
Westpac, which was thrown into crisis last November by a money laundering lawsuit from the regulator AUSTRAC, said impairment charges hit $2.4 billion, an increase of $1.9 billion.
"This is the most difficult result Westpac has seen in many years. It is significantly impacted by higher impairment charges due to COVID-19, as well as notable items including the AUSTRAC provision," said Westpac chief executive Peter King.
Mr King also flagged potential asset sales, saying it had re-hired Westpac executive Jason Yetton to oversee a review of businesses including wealth platforms, superannuation and retirement products, investments, general and life insurance, and auto loans. The businesses would be put into a new division and could be sold off, the bank said.
Westpac's results were dominated by the impact of COVID-19, which has lenders bracing for a wave of bad loans from affected households and businesses.
The bank's closely watched common equity tier 1 (CET1) capital, an important gauge of strength, was 10.8 per cent of risk-weighted assets, above the level of 10.5 per cent targeted by regulators. Deposits were up $19 billion in the half, easily outstripping loan growth, and its profit margins widened.
But as previously disclosed by the bank, profits in the half were hit by a $1.6 billion charge for COVID-19 and a $900 million provision for the penalty over the AUSTRAC scandal.
Mr King painted a bleak picture on the outlook, saying the economy would contract sharply this quarter and not bounce back until late in the December quarter.
“Business and consumer confidence have fallen sharply. A sustained recovery cannot be expected until the December quarter, although we expect caution to prevail well into 2021,” Mr King said.
“House prices are expected to fall through the remainder of 2020, reversing the recent recoveries, particularly in Sydney and Melbourne."
In an attempt to minimise the economic carnage caused by the pandemic, banks have deployed loan repayment deferrals and emergency loans to hundreds of thousands of customers in recent months. Westpac said 105,000 mortgage accounts worth $39 billion had been put on hold, alongside 31,000 business loans with a value of $8.2 billion.
Westpac said its board would review dividend options over the year, but it would not make a dividend payment in June due to the uncertainty created by the pandemic. "This was a difficult decision given many retail shareholders rely on Westpac dividends," the bank said.
Mr King was appointed CEO on a long-term basis last month, after former chief Brian Hartzer was last year pushed out by the explosive AUSTRAC lawsuit, which alleged more than 23 million breaches including failures to properly vet payments facilitating child exploitation.
Mr King said the bank's non-financial risk management needed to improve, and this was one of the top priorities for the banking group.
ANZ Bank last week suspended a decision on its dividend due to the uncertain environment, and National Australia Bank cut its payment by 64 per cent to 30c a share as it launched a $3.5 billion equity raising.