Asia Pacific

Australia's Westpac considers capital returns, flags shrinking margins

3 minute read

Pedestrians walk past the ground floor of an office building with Westpac logo amidst the easing of the coronavirus disease (COVID-19) restrictions in the Central Business District of Sydney, Australia, June 3, 2020. REUTERS/Loren Elliott/Files

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  • Capital update at FY21 results due in November
  • Bank stresses lower margins for second half of fiscal 2021
  • Capital commentary bode well for shareholders - Goldman Sachs

SYDNEY/BENGALURU, Aug 17 (Reuters) - Australia's Westpac Banking Corp (WBC.AX)said on Tuesday it is considering returning excess capital to shareholders thanks to the country's post-pandemic rebound and after selling non-core assets, but highlighted lending margins were shrinking.

The country's early control of the pandemic last year drove property prices and credit growth higher, allowing big banks to return excess cash. Westpac, the No.2 lender, is the only one out of the "Big Four" that is yet to announce plans to return billions of cash back to investors.

It did not disclose a profit for the third quarter on Tuesday, but reiterated its expectation of lower margins for the second half and higher expenses for fiscal 2021.

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Westpac said given its excess cash and tax credit balances, it was considering returning funds to investors and it would provide an update on its plans at its full-year results in November.

"Management's explicit commentary around its surplus capital and franking position ... does bode well for shareholders," Goldman Sachs analysts said in a note to clients.

However, reinstating guidance for lower margins and higher expenses in the second half, suggests earnings expectations for the bank might be too optimistic, the broker added.

Westpac shares were 0.31% lower in morning trading, in a broader market (.AXJO) that was down 0.26%.

It reported total impairment provisions of A$5.54 billion for the June quarter, including A$300 million for exposure to equipment financier Forum Finance Pty Ltd.

The bank last month filed a civil lawsuit against Forum Finance after discovering a potential fraud regarding equipment leases for its customers. read more

Westpac's common equity tier 1 ratio, a closely watched measure of spare cash, was at 12% as of end-June compared with 12.3% at end-March. As of Aug. 11, it had approved a total of A$1.6 billion in home loan balance deferrals for about 3,700 customers who had accessed COVID-19 emergency support since July.

In a separate statement, Westpac said it would raise about A$1 billion ($734 million) through a sale of notes, with part of the proceeds slated to refinance similar securities.

($1 = 1.3633 Australian dollars)

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Reporting by Paulina Duran in Sydney; Shashwat Awasthi and Arundhati Dutta in Bengaluru; Editing by Aditya Soni, Arun Koyyur and Lincoln Feast.

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