Westpac's first-half profit slumped 22 per cent on customer remediation, restructuring costs, and a weak property market, but chief executive Brian Hartzer says the worst may be over at Australia's second largest bank.
Unlike rival NAB, Westpac was able to hold its interim dividend despite setting aside $617 million to cover refunds and associated costs following the financial services royal commission.
Cash earnings fell to $3.296 billion for the six months to March 31, down from $4.251 billion a year earlier, which Mr Hartzer said was disappointing but necessary as the lender addresses structural issues against the backdrop of last year's royal commission.
"The past six months has been a turning point," Mr Hartzer said
"We are proactively addressing legacy issues while improving our products and services to ensure they deliver the right customer outcomes."
Westpac has now made $1.45 billion in pre-tax provisions over the past three years for customer remediation programs, including $1.25 billion for refunds.
Softening house prices and slowing mortgage growth weighed on the result, while the bank's insurance arm copped $94 million in catastrophe claims due to floods in Queensland and December's hailstorm in Sydney.
Westpac also took a $136 million hit on the restructure of its wealth unit.
The bank predicted a challenging second half amid softening house prices and slowing credit growth, with Mr Hartzer likening the conditions facing the banking sector to the 1991 recession.
But he said restoring the bank's image remains a priority.
"Despite our 202-year history, we know we still have to win back customers' trust," Mr Hartzer said.
The bank's first-half net interest margin - the difference between interest charged on a loan and that paid to fund it - fell to 2.12 per cent from 2.28 per cent a year ago.
Westpac recorded a modest one per cent increase in mortgage lending over the half, mostly in owner-occupied lending, partly offset by a decline in both business lending and in other personal lending.
It held its dividend at a fully franked 94 cents - in contrast to NAB, which last week slashed its dividend from 99 to 83 cents - but Westpac shares still dropped as much as 2.3 per cent.
At 1420 AEST, they were 1.55 per cent lower at $27.015.
Moody's Investors Service vice president Daniel Yu said Westpac's result reflected challenges facing Australia's banks, including a low credit growth environment and intense competition.
Mr Yu said uptick in the number of mortgage payments in arrears was also worrying.
"(Westpac's) asset quality remains strong but is showing signs of weakening on the back of higher mortgage delinquencies," Mr Yu said.
WESTPAC'S DISAPPOINTING FIRST HALF
* Cash profit down 22pct to $3.296b
* Statutory profit down 24 pct to $3.173b
* Net operating income down 10pct to $9.979b
* Interim dividend unchanged at 94 cents, fully franked
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