Westpac’s 1H25 Profit Slides to AUD 3.3bn; CET1 Ratio Holds at 12.2%
Westpac Banking Corporation reported a 9% decline in net profit for the first half of 2025, reflecting margin compression and higher costs, while advancing its digital transformation and sustainability agenda.
- Net profit of AUD 3.317 billion, down 9% year-on-year
- Core net interest income stable; net interest margin contracts due to competition
- Operating expenses rise 3% driven by technology and staff investments
- Strong capital position maintained with CET1 ratio at 12.2%
- Fully franked interim dividend declared at 76 cents per share
Profit and Margin Dynamics
Westpac Banking Corporation released its interim financial results for the six months ended 31 March 2025, reporting a net profit attributable to owners of AUD 3.317 billion. This represents a 9% decline compared to the prior corresponding period, or a 4% decrease when excluding notable items such as unrealised hedge losses. The bank’s core net interest income remained stable, supported by growth in average interest-earning assets, but the net interest margin (NIM) contracted by 3 basis points to 1.80%, reflecting heightened competition in lending and deposit markets.
Revenue and Expense Trends
Non-interest income increased by 3% excluding notable items, driven by higher markets income and wealth management fees. However, operating expenses rose 3% to AUD 5.698 billion, primarily due to increased investment in technology initiatives, including the UNITE simplification program, and higher staff costs reflecting wage growth and increased headcount. The bank’s focus on digital innovation is evident in enhancements to its award-winning banking app and the rollout of AI-powered tools for business lending and institutional banking.
Credit Quality and Capital Strength
Credit impairment charges remained historically low at 6 basis points of average loans, with provisions exceeding expected losses by AUD 1.7 billion, underscoring prudent risk management. The Common Equity Tier 1 (CET1) capital ratio stood at a robust 12.2%, slightly down 25 basis points from the prior half, influenced by dividend payments, risk-weighted asset growth, and share buybacks. Liquidity metrics also remained strong, with a liquidity coverage ratio (LCR) of 135% and a net stable funding ratio (NSFR) of 115%, both well above regulatory minimums.
Strategic and Regulatory Developments
Westpac continues to pivot strategically towards business and institutional banking, while enhancing returns in consumer banking. The bank is investing heavily in customer service excellence, digital transformation, and sustainability, including commitments to net-zero emissions and climate resilience. Executive changes during the period include the appointment of Anthony Miller as CEO and several key leadership transitions. Regulatory compliance remains a priority amid ongoing investigations and evolving frameworks, including the implementation of the new Australian Banking Code of Practice and financial crime risk management enhancements.
Shareholder Returns and Outlook
The Board declared a fully franked interim dividend of 76 cents per share, representing a payout ratio at the top end of the sustainable range. The dividend reinvestment plan will be satisfied through on-market purchases without a discount. Looking ahead, Westpac anticipates modest economic growth in Australia and New Zealand, with ongoing challenges from geopolitical tensions and competitive pressures. The bank’s strong capital and liquidity position provide a buffer to navigate uncertainties while continuing to invest in transformation and customer experience.
Bottom Line?
Westpac’s interim results highlight the balancing act between margin pressures and strategic investments, setting the stage for a critical second half as competitive and regulatory challenges persist.
Questions in the middle?
- How will Westpac manage margin compression amid intensifying competition in mortgages and business lending?
- What impact will APRA’s phase-out of Additional Tier 1 capital have on Westpac’s capital strategy and dividend policy?
- Can the bank’s digital transformation initiatives, including AI tools and UNITE, deliver the anticipated efficiency gains and customer benefits?
