Westpac has signalled its recovery from the pandemic with cash earnings increasing by 256% to $3.5 billion over the last 12 months, as it looks to reduce costs by 2024 and farewells a key executive.
In its half-year results, Westpac recorded a 189% increase in statutory net profit to $3.4 billion.
The bank attributed the substantial increase in net profit to the impairment charges of $2.2 billion in the first half of 2020 while recording impairment charges of just $372 million for the first half of 2021.
"First half earnings were considerably higher than the prior corresponding period, mainly due to an impairment benefit reflecting improved asset quality and a better economic outlook. Notable items were also lower. We improved balance sheet strength, with our Common Equity Tier 1 capital ratio rising 153 basis points to 12.34%," Westpac group chief executive Peter King said.
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Plato Investment Management senior portfolio manager Peter Gardner said the writeback in provisions is a positive outlook for the banking sector.
"The significant write back of provisions by Westpac is something investors should see repeated across the board and while the massive cash earnings growth comes from a low base, it's certainly encouraging for the sector as a whole," Gardner said.
The bank also announced plans to reduce its costs by $8 billion by 2024 by continuing to offload its specialist businesses and ramp up its digital transformation.
Westpac has already sold Vendor Finance, Westpac Pacific, General Insurance and Lenders Mortgage Insurance.
The remaining businesses to be sold include Westpac Life Insurance, Auto Finance and its superannuation, platforms and investments divisions (including BT).
"We are strengthening our focus on costs and today have announced a three-year cost reset plan to set us up for being a more streamlined, simpler organisation with a stronger digital focus and smaller head office," King said.
"A significant reset is required to ensure the business is cost competitive over the long term, particularly as we navigate the pandemic's recovery phase and an extended low-rate environment."
The bank also noted that its plan in its 'Fix' strategy to strengthen risk governance is underway following the AUSTRAC scandal and also orders from APRA.
As a result, Westpac has doubled its financial crime operations team and added 100 roles in risk to improve risk management capability.
Throughout the half, Westpac paid $200 million to around 500,000 customers.
"We expect costs to increase in FY21 as we deliver on our 'Fix' priority, before starting to fall from FY22," King said.
Finally, King also announced the retirement of Westpac New Zealand chief executive David McLean, who has been in the role since 2015.
McLean joined the bank in 1999 as managing director of New Zealand for Westpac Institutional Bank (WIB) before moving to general manager wealth insurance private and institutional banking.
He then went on to lead the American division of WIB in New York.
"David has led the bank through the challenges of COVID-19, with a sharp focus on helping customers adapt and supporting New Zealanders through the recovery," King said.
McLean will stay in the role until June 25 and Westpac NZ's general manager institutional & business banking Simon Power will take over in an acting capacity until a replacement has been found.
It follows the bank's announcement that it is considering demerging the NZ business from the group.