Marginal Interest

Westpac Banking Corporation posted first-half FY17 cash earnings of $4.017 billion, up 3% on a year ago and in line with Ord Minnett’s expectations, and declared a flat dividend of $0.94 per share, also in line with our forecast and representing an elevated payout ratio of circa 79%.


The bank's results echoed the themes highlighted in the results of its rivals, i.e. margins not living up to expectations; an absence of growth in core domestic consumer and business banking franchises; and strong core equity tier-one ratio outcomes around 10%.


The 4.0 basis points decline in Westpac's first-half FY17 net interest margin to 2.07% was clearly reflective of the elevated levels of term deposit competition seen towards the end of last year averaging through the book. This was offset by trading gains of circa $700 million being well above the typical $500 million run-rate. We are forecasting a 3.0 basis points improvement in second-half FY17 margins from recent re-pricing initiatives.


Regarding the bank levy imposed in the federal budget, the proposed 1 July commencement date of the levy means there will only be a 1.0 basis point drag on net interest margins evident in second-half earnings across the major banks. Accordingly, the banks have time on their side to assess the implications and competitive responses over the coming six months or so.

Ord Minnett Research Trial

We invite you to sign up for a three month trial of our Ords Monthly investment newsletter. This report includes our latest opinions, research and share market insights that may enhance your current portfolio structure.