Westpac is hoping a pickup in business lending will help it balance the impact of a slowing housing market and regulatory uncertainty.
Australia's second largest lender on Monday lifted its full year cash profit three per cent to a record $7.8 billion on the back of increased home loans, but is bracing for slowing earnings ahead.
The lender had unveiled preliminary results in October, when it announced a $3.5 billion equity raising to help bolster its balance sheet, to satisfy stricter regulatory capital requirements.
Like its peers National Australia Bank and ANZ, both of which posted disappointing earnings last week, Westpac also pointed to the headwinds ahead.
"We continue to operate in a lower-for-longer environment with modest credit growth, intense competition, and some ongoing regulatory uncertainty," chief executive Brian Hartzer said.
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Westpac, which in October became the first lender to push home loan rates higher, defended its decision, saying the capital raising it needed to make was very large and the cost needed to be shared around.
It's rate increase was quickly followed ANZ, NAB and Commonwealth Bank, sparking anger from borrowers and sharply increasing the likelihood of a rate cut by the Reserve Bank.
"We have tried to be quite disciplined in managing the impact of regulatory change on our customers," Mr Hartzer said.
Australia's four big banks delivered combined annual cash earnings of $30 billion in 2015, but are clearly looking at slowing growth and declining returns, advisory firm Ernst&Young said in a report on the sector.
Banks will need to refocus on core business and reshape through technology, to prosper amid Australia's ongoing transition to a broader-based economy, EY said.
Despite the challenging environment, Westpac is seeing signs of improvement in business investment, helped by low interest rates and a weaker Australian dollar.
"We are seeing good growth in the non-mining related sectors such as tourism, education and health. This is showing in our lending book, particularly in SME lending," Mr Hartzer said.
Reserve Bank of Australia data last week showed private sector credit rose at an annual rate of more than six per cent in September, the fastest pace in several years. At the same time, growth in credit for housing is slowing.
Morningstar analyst David Ellis said any improvement in business lending would benefit all the big four banks, including Westpac.
At the same time, he expects a modest decline in the growth of home loans, as more investor loans are gradually replaced by owner-occupier mortgages.
Westpac said its total lending for the year rose 7.0 per cent, mainly powered by a 7.0 per cent increase in home loans in Australia. Personal loans rose 5.0 per cent, while business lending increased by 6.0 per cent.
Net interest income rose six per cent to $14.2 billion. However, its net interest margin, a key gauge of profitability, remained flat. Loan impairment charges rose 16 per cent.
Westpac shares closed 77 cents, or 2.45 per cent, lower at $30.61.
NO SURPRISES IN WESTPAC NUMBERS
* Cash profit up 3.0pct at $7.82bn
* Net profit up 6.0pct at $8.01bn
* Final dividend up 2.0 cents at 94 cents, fully franked
