Westpac: Operating Efficiency Improvements Crucial Given Industrywide Margin Pressure

Westpac’s first-quarter 2024 profit of AUD 1.8 billion is little changed from the final quarter of 2023, with margin pressure and higher bad debts well managed. Net interest margin, or NIM, slipped just 1 basis point to 1.93% compared with the second half of 2023. Despite some modest pricing changes recently, headwinds from customer deposit price competition and switching and home loan discounting, persist and is expected to see margins ease further in 2024. Concerns about Westpac’s ability to compete should be subsiding though, as the bank is now growing deposits and home loans in line with the market, even growing ahead of the market in the six months to December 2023. Bad debt expenses/loans increased 3 basis points to 0.10%, below our fiscal 2024 forecast of 0.12%, and medium-term expectation of 0.17%. With credit stress rising from low levels, it is likely bad debts have bottomed, but the bank is sitting on large provision balances which helps soften the impact on earnings.