Westpac lifted first-half profit just 3.3 per cent, disappointing investors after the cost of bad loans at Australia's second biggest bank almost doubled.
Investors reacted savagely on Monday after Westpac's cash profit for the six months to March 31 came in below analysts' expectations at $3.904 billion, sending the share price tumbling by as much as 5.7 per cent.
The profit was up from $3.778 billion a year ago but below consensus of about $4.1 billion, largely due to an increase in provisions related to what Westpac described as four major institutional customers.
At 1538 AEST, the share price was down $1.28, or 4.09 per cent, at $29.77.
"Although our economy remains strong, resilient and adaptive, in any period there are always going to be some companies that aren't able to adapt and we have to be ready for that," chief executive Brian Hartzer said.
Total impairment charges for bad debts rose 96 per cent over the past 12 months to $667 million, but chief financial officer Peter King said overall asset quality was unlikely to deteriorate further.
"We're probably at the low point of the cycle, however there's no indication of any fast pickup," Mr King said.
Cash earnings at Westpac's institutional bank dropped 20.8 per cent to $517 million as a result of a $201 million increase in impairments.
UBS analysts last week identified the four stressed businesses referred to by the bank as steelmaker Arrium, law firm Slater and Gordon, miner Peabody Energy and transport company McAleese.
Return on equity was below Westpac's 15 per cent target at 14.2 per cent, with cash earnings per share down 2.5 cents at 118.2 cents following last year's $3.5 billion capital raising.
But Morningstar banking analyst David Ellis said he was surprised by the savage market reaction to Westpac's earnings given it and ANZ had already flagged a rise in bad debts.
Mr Ellis said the result could set the tone for ANZ and National Australia Bank, which report their first-half results on Tuesday and Thursday respectively.
"Return on equity and earnings per share for the sector will be soft this year because of slowing profit growth and a larger share base - that will be a consistent theme," Mr Ellis said.
Mr Ellis said the fundamentals of Westpac's business remained strong.
Australian mortgage lending rose eight per cent and Australian business lending rose six per cent, while the interim dividend was lifted one cent to 94 cents per share.
Statutory profit for the six months to March 31 was $3.701 billion, a 2.5 per cent increase on the same time last year.
WESTPAC'S 1H RESULTS
* Cash earnings up 3.3pct to $3.904 billion
* Net profit up 2.5pct to $3.701 billion
* Interim dividend up one cent to 94 cents, fully franked
