Westpac Group has reported a 26% surge in net profit, reaching $7.20 billion, for the fiscal year 2023. The bank's CEO, Peter King, announced a 10% increase in return on equity, despite an uptick in delinquencies and fewer borrowers ahead on repayments, which now stands at 47%. This robust financial performance was driven by a 5% increase in new loans, totaling $773 billion. Of these new loans, $13 billion contributed to expanding Australia's mortgage sector to $486 billion.
The majority of these mortgages were from owner-occupied properties accounting for 67.1%, followed by investor loans at 31.6%. Brokers wrote 51.9% of these mortgages. The bank's share of Australia's mortgage market now stands at 21%, with its third-party loan approval process taking seven days on average.
Despite the expiry of $51 billion in fixed-rate loans, Westpac saw retention rates rise to 90%. As a measure to mitigate anticipated challenges in 2024 due to cost-of-living pressures and rising interest rates, Westpac plans to offer a 1% buffer on loans to eligible customers, aligning with APRA’s 3% buffer mandate.
In New Zealand, Westpac CEO Catherine McGrath stated that the bank has successfully transitioned 88% of its mortgage customers to fixed-term rates of 5% or higher. Most customers have chosen one-year terms with options of a standard rate at 7.95% or a "special" rate at 7.35%. The floating rate stands at 8.64%, and the rate adjustment process is expected to conclude by September 30 next year.
Fixed-rate customers account for a significant 91% of the total customer base in New Zealand, contributing to mortgage lending making up 66.3% of total net lending as part of the group of NZ entities. Despite these changes, approximately 67% of mortgage holders remain three months ahead on repayments.
While the bank reported an annual net profit decrease by 18% to $963 million for the entire NZ group, CFO Tania O'Brien highlighted the bank's robust deposit-to-loan ratio of 80.4%. Despite volatile global wholesale markets, Westpac has had no issues securing additional funding. The bank continues its technological investment, with 87% of home loan applications processed digitally and an ongoing focus on technology simplification.
InvestingPro Insights
InvestingPro's real-time data and tips offer valuable insights into Westpac's performance and potential future trends. As per InvestingPro data, Westpac's Price to Earnings (P/E) ratio stands at 10.97 as of Q2 2023, indicating a relatively low valuation compared to its earnings. The bank's Price to Earnings Growth (PEG) ratio is at 0.41, suggesting that its stock might be undervalued considering its earnings growth. Additionally, the bank's Price to Book ratio is 1.01, reflecting a fair market valuation.
InvestingPro Tips highlight that Westpac has consistently increased its earnings per share and remains a prominent player in the banking industry. These factors, along with the bank's ability to maintain dividend payments for 32 consecutive years, underline its financial stability. Yet, it's essential to note that the bank's quick cash burn and weak gross profit margins could pose potential risks.
InvestingPro offers numerous additional tips for those interested in a deeper understanding of Westpac's financial health and potential investment opportunities.
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