Financial highlights Full Year 2017 compared to Full Year 2016
Statutory net profit $7,990 million, up 7% • Cash earnings $8,062 million, up 3% • Cash earnings per share 239.7 cents, up 2% • Cash return on equity (ROE) 13.8%, within target range • Unchanged final fully franked dividend of 94 cents per share (Full year dividend of 188 cents per share, unchanged) • Common equity Tier 1 capital ratio 10.6% • Bank levy $95 million (pre-tax)
Westpac Group CEO, Mr Brian Hartzer said: “This is another solid result. We have continued to successfully navigate a challenging environment while our strategy builds momentum.
“Our primary goal in 2017 was to carefully balance growth and returns, while meeting all of our new macro-prudential regulatory requirements. We achieved the required macro-prudential targets for home lending. The credit quality of our loan portfolio is in great shape with stressed assets reducing during the year.
“Our balance sheet strength is a particular highlight: with our CET capital ratio of 10.6% we are already above APRA’s ‘unquestionably strong’ benchmark of 10.5%, well in advance of the January 2020 deadline. We also met the new standard for the Net Stable Funding Ratio (NSFR), ahead of the January 2018 deadline.
“Our portfolio of businesses continues to perform well. WIB was the standout, with a particularly strong first half, and our Consumer and Business Banks continue to deliver good earnings growth. New Zealand also performed well, benefitting from improved credit quality. BT Financial Group had a softer year – while the underlying business continued to grow, results were impacted by some infrequent items and higher claims.”
Mr Hartzer said the Group result also included a provision for customer payments to address legacy issues.
“As part of our ‘get it right, put it right’ program we’ve been reviewing our products and services and the way we have engaged with our customers. Where we have found issues that we need to put right, we ensure that no customer has been disadvantaged from those past practices. For example, a review into our superannuation disclosure is resulting in payments to some customers with pre-existing conditions who did not have the benefit of our improved disclosure practices and who previously had their claims denied. We are also refunding customers who were entitled to certain product discounts, but may not have been aware that they needed to specifically request them. The cash earnings impact of these changes was $118 million this year, equivalent to 1.5% of earnings.
“Despite these challenges, our business is in excellent shape: customer satisfaction has risen, employee engagement is above the global high performing benchmark, and we have achieved our goal of welcoming one million new customers since 2015. We’ve continued to improve the functionality and convenience of our digital channels, our wealth system Panorama added around $4bn funds under administration in FY17, and we’ve originated our first mortgages using our new customer service hub – an important milestone in the modernisation of our technology infrastructure. At a time of substantial change in our industry, we’ve got a clear strategic agenda that is delivering for both customers and shareholders.”
Dividends
The Westpac Group Board has determined an unchanged final, fully franked dividend of 94 cents per share to be paid on 22 December 2017. The final dividend represents a payout ratio of 78.7% of cash earnings.
The bank levy cost $95 million for the full year. The Board considered a range of factors including the impact of the bank levy in determining the dividend. The levy will be paid out of retained earnings and is equivalent to two cents per share.
The dividend reinvestment plan (DRP) will continue to apply and there will be no discount to the market price. Shares will be issued to satisfy the DRP.
Outlook
Mr Hartzer said the outlook for Australia remains positive overall, with GDP growth expected to be slightly above trend at around 2.5% in 2018. However, the growth outlook will remain mixed across the country. He said global growth is expected to consolidate around 3.5%.
“Economic growth is picking up around the world – most major markets are now growing, which is something we haven’t seen for a while. In the US, in France, and in other markets around the world governments are cutting taxes, cutting red tape, and investing in infrastructure. It’s a good reminder that policy certainty is a great spur to business investment.
“Business in Australia is ready to invest, however many of our customers are holding back because of policy uncertainty. Whether it’s on energy policy, transport infrastructure, or fixing up the tax arrangements between the states, Governments at all levels need to come together with business for a common purpose to provide the certainty that’s needed to drive confidence.”
Mr Hartzer said Westpac’s consistent focus on Australia and New Zealand over a long period means its high quality portfolio was strongly positioned.
“We remain positive about the Australian housing market, although we expect price growth to moderate through 2018. 90+ day delinquencies remain low by historical measures and our home loan customers continue to take advantage of low interest rates with more than 70% of customers ahead on their repayments.
“We have a strong customer franchise which continues to grow, we are taking advantage of the opportunities created by a digital world, and we are well-positioned in the faster growing parts of our economy. These factors, plus a highly-engaged culture that continues to attract great people, gives me confidence about Westpac’s outlook and our ability to outperform over the long term.”