Westpac chief executive Gail Kelly says she is amazed by the attention variable mortgage rates attract, despite delaying a cut to the bank’s rates to deliver a near $3 billion first half profit.
Westpac has put off a move on its standard variable rate (SVR) on loans to Friday, even though two of its major rivals have already lowered interest rates since the Reserve Bank cut the cash rate by a surprise 0.5 per cent on Tuesday.
Westpac’s other rival, ANZ, will make its decision on whether to move on May 11, in line with its new policy of monthly rate decisions.
Ms Kelly said it was important Westpac spent Thursday presenting its $2.97 billion net profit for the six months to March 31 to investors and analysts.
“I’m amazed at how people pay so much attention to that SVR rate, because we all know that very few people actually pay the SVR rate,” she told reporters.
And Ms Kelly hinted a cut to Westpac’s rates would not match the 0.5 per cent made by the RBA.
“It has been a tough time over this past six months with managing higher cost of fund pressures,” she told reporters. “I have to say the margin pressures have become a bit stronger in the second half of this half, the second quarter.”
Competition for deposits among the banks is the main cause of those higher costs, as the margin between the cash rate and term deposit rates widens, the bank said.
Westpac’s net interest margin, a measure of profitability on loans, fell by six basis points to 2.17 per cent in the six months to March.
The bank’s first half net profit of $2.97 billion was down 25 per cent from $3.96 billion in the previous corresponding period.
The previous corresponding period’s profit was boosted by a one-off tax consolidation of $1.1 billion relating to Westpac’s takeover of St George.
Westpac’s first half cash profit, which takes out one-off financial items, was $3.195 billion, up 1.0 per cent on $3.17 billion in the previous corresponding period.
Analysts had forecast a $3.11 billion first half cash profit, and Westpac shares rose as a result, gaining 30 cents to $22.99 by 1545 AEST.
Despite Treasurer Wayne Swan’s repeated call for customers to change lenders if they were unhappy with their bank, Ms Kelly said Westpac had no problems holding onto mortgage holders.
“We’ve found that we’ve been very, very good at being able to manage our overall customer base. Our retention is excellent,” she said.
City Index analyst Peter Esho said Westpac’s numbers illustrated the strength of Australian banks in a subdued economic environment.
“A lot has been said about the Australian banks and how vulnerable they might be in the current market climate, but what today’s scorecard from Westpac shows is an ability to grow earnings, manage margin pressure and maintain loan quality in very tough economic conditions,” he said.
