Westpac annual profit slips as home lending faces competition from rivals

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  Sports and Competition on Sun, Nov 02nd, 2025 by reuters.com

Westpac’s Annual Profit Slips 2% Amid Tightening Monetary Policy and Rising Costs

Australia’s largest lender, West Pac, reported that its full‑year profit fell 2% to $4.5 billion from $4.6 billion a year earlier, marking the first decline since 2020. The slight dip came in the context of a challenging macro‑environment that has seen the Reserve Bank of Australia (RBA) maintain a high policy rate, heightened operating expenses, and continued pressure on net interest margins.

West Pac’s board and CEO Tim Wilson highlighted that the decline was driven largely by a 30 basis point contraction in the net interest margin, offsetting a modest improvement in loan growth. The bank’s loan book expanded to $380 billion, a 4% rise year‑on‑year, but the quality of the portfolio remained steady, with non‑performing loans falling to 0.6% of the book. Meanwhile, the bank’s deposit base grew by 2.7%, adding $12 billion in new funds, although this growth lagged behind the broader Australian banking sector, where deposits at the four major banks increased by 3.8%.

Operating expenses rose by 8% to $2.7 billion, reflecting West Pac’s ongoing investment in digital transformation and risk management. The bank has been expanding its online banking platform and deploying artificial‑intelligence tools to enhance customer service and streamline underwriting. In addition, the company has increased its capital earmarked for compliance with Basel III requirements and for potential write‑downs related to the ongoing audit of its Australian and New Zealand portfolios.

The profit decline also reflects the impact of the RBA’s 2023 rate‑setting decisions. After a period of rate cuts to support the economy in 2020 and 2021, the RBA began to raise rates in late 2022, reaching 4.35% by the end of the year. West Pac’s interest income of $20.3 billion was therefore compressed by tighter margin conditions, particularly in the retail banking segment where interest rates on savings accounts have plateaued.

In the first quarter, West Pac’s earnings per share were $1.24, down from $1.33 in the same period the previous year. The bank’s Q4 earnings release, which is available on its website, detailed that net interest income fell by 25 basis points relative to the prior year, while credit costs increased by 12 basis points.

West Pac’s strategy for the coming year, as outlined by CEO Wilson, focuses on cost optimization, deepening digital capabilities, and expanding its wealth management offerings. The bank plans to launch a new “Future Wealth” platform that will combine robo‑advisory services with human financial advice. It also intends to reduce branch footprint by 20% over the next three years, re‑allocating staff to digital support and higher‑value relationship management.

When compared with peers, West Pac’s performance aligns closely with Commonwealth Bank and National Australia Bank, both of which reported similar 2‑3% dips in profitability. ANZ, on the other hand, managed to record a modest 1% increase, largely due to a stronger performance in its Australasian retail segment and a higher loan growth rate of 5%.

Industry analysts suggest that West Pac’s slight decline is a natural outcome of the current high‑rate environment, but they also note that the bank’s robust risk management framework positions it well for future volatility. The Australian Financial Review has highlighted that West Pac’s stress‑testing models incorporate scenarios of prolonged high rates and rising default rates, ensuring that the bank’s capital buffers remain adequate.

Beyond domestic operations, West Pac continues to consolidate its presence in New Zealand. The company’s New Zealand subsidiary reported a 1% rise in net profit, driven by a 3% increase in deposit growth and a modest expansion in loan volumes. The subsidiary’s earnings were also supported by a favourable currency environment, as the Australian dollar has remained relatively strong against the New Zealand dollar.

West Pac’s shareholders reacted positively to the announcement, with the stock price gaining 1.2% on the day of the results. The bank’s dividend per share increased to $0.15, up from $0.14 in 2022, reflecting its commitment to returning value to investors despite a slightly lower profit base.

Overall, West Pac’s 2% decline in annual profit underscores the impact of a tightening monetary policy and rising operating costs on Australia’s banking sector. However, the lender’s solid asset quality, expanding digital footprint, and proactive risk management strategy suggest that it is well positioned to navigate the evolving economic landscape and to deliver sustainable growth in the coming years.