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Australia's Westpac sees Q1 profit slide as property downturn gathers

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Australian No. 2 lender Westpac Banking Corp reported an apparent decline in December-quarter profit on Monday amid a downturn in the housing market, but its shares rose after the company said higher mortgage rates fattened profit margins.

[SYDNEY] Australian No. 2 lender Westpac Banking Corp reported an apparent decline in December-quarter profit on Monday amid a downturn in the housing market, but its shares rose after the company said higher mortgage rates fattened profit margins.

The Sydney-based bank also reported a rise in mortgage customers struggling to pay their loans, another sign of pressure on the engine room of the country's retail banking sector.

The result reflects the back-to-basics strategy of Australia's big lenders as they raise lending rates and cut costs to weather the biggest property downturn in a generation.

That is against a backdrop of a regulatory crackdown on retail lending, fuelled by a misconduct inquiry into the finance sector which ended this month. Commonwealth Bank of Australia, the country's biggest lender, and fourth-ranked National Australia Bank Ltd, posted weaker than expected earnings in recent weeks .

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In a limited trading update, Westpac said cash earnings were A$2.04 billion (S$1.98 billion) for the three months to end-December. It did not give a comparable result for the same quarter a year earlier, but it made cash earnings of A$4.25 billion for the prior first half, implying a higher quarterly figure of about A$2.13 billion.

Its net interest margin, excluding treasury and markets units, rose by an unspecified amount, as its decision to raise mortgage rates without a change in the central bank rate paid off.

Westpac shares rose as much as 1 per cent before easing to trade slightly higher by midsession, in line with the broader market.

"Margins have responded to the repricing which is good ... and they're keeping expenses under control, given that there's not much income growth," said Brett Le Mesurier, senior banking analyst at Shaw and Partners.

Citi analysts said in a note that the bank had "continued the recent sector trend of weak profit growth (but) the core banking business appears in-line with our expectations".

Westpac owns Australia's second-biggest mortgage book after CBA. It said mortgage delinquencies rose four basis points, or 0.04 of a percentage point, over the quarter, and investment mortgage loans grew just 0.8 per cent.

In a show of the tougher regulatory climate for banks, the country's corporate regulator also said on Monday that it had filed an appeal against a court ruling which found Westpac staff did not offer "personal advice" to clients during a 2014 promotion.

REUTERS