Westpac Posts Resilient 1Q25 Profit Amid Capital Strength and Credit Stability

Solid Financial Performance Despite Revenue Pressure

Westpac Banking Corporation reported a net profit of $1.7 billion for the first quarter ending December 31, 2024, marking a 9% decline compared to the previous half-year average. However, when excluding notable items, profit actually rose by 3% to $1.9 billion, underscoring underlying operational strength. Revenue fell 4%, but excluding notable items, it increased by 2%, indicating some resilience amid challenging market conditions.

The net interest margin (NIM) contracted slightly to 1.82%, down 1 basis point from the prior half-year period when excluding a provision release. This marginal decline reflects ongoing pressures in the interest rate environment but remains within a stable range for the bank.

Capital Position Remains Robust

Westpac’s Common Equity Tier 1 (CET1) capital ratio stood at 11.9%, comfortably above the bank’s target operating range of 11.0% to 11.5%. This strong capital buffer provides the bank with flexibility to navigate potential economic headwinds and regulatory requirements. Risk-weighted assets (RWA) increased by $14 billion or 3.2%, driven by loan growth and higher interest rate risk in the banking book (IRRBB), but the bank maintained a disciplined approach to capital management, including ongoing share buybacks.

Credit Quality Shows Continued Resilience

Credit quality metrics remain encouraging. Impairment charges rose slightly to 5 basis points of average loans from 4 basis points but remain low overall, reflecting continued customer resilience. Total expected credit loss provisions held steady at $5.1 billion. Mortgage delinquencies improved, with 90+ day delinquencies on Australian mortgages falling to 1.03%, down 9 basis points from the previous period. This improvement signals a stable housing market and effective risk management.

Stressed assets to total committed exposures (TCE) decreased to 1.39%, down 6 basis points, further illustrating the bank’s cautious credit stance. Sectoral analysis showed modest stress in property and wholesale trade sectors but no significant deterioration across the portfolio.

Funding and Liquidity Remain Strong

Westpac’s liquidity coverage ratio (LCR) averaged 131%, well above the regulatory minimum, while the net stable funding ratio (NSFR) stood at 113%. The deposit-to-loan ratio increased to 83.9%, reflecting solid deposit growth that supports the bank’s lending activities. Term debt issuance remained active, with a diversified maturity profile supporting funding stability.

Overall, Westpac’s balance sheet remains strong, supported by prudent capital management, stable credit quality, and robust liquidity metrics. The bank’s cautious optimism is evident in its steady operating expenses, which rose only 1% despite wage growth, partly offset by lower investment spend.

Looking Ahead

While the slight decline in net profit and NIM may prompt some caution, Westpac’s capital strength and credit resilience position it well to manage evolving economic conditions. Investors will be watching closely how the bank navigates interest rate fluctuations and potential credit risks in coming quarters.