Westpac flags Middle East risk, weaker markets income; mortgage portfolio sale cost hits profit

WESTPAC Banking Corp on Tuesday said conflict in the Middle East and resultant energy market shocks are emerging as profit pressures for the first half of the year, prompting the bank to increase credit provisions.

The Australian bank said the net interest margin in its treasury and markets division was weaker amid interest-rate volatility linked to the conflict, falling to 7 basis points in the second quarter from 15 basis points in the first.

“With the supply shock from the energy market disruption expected to result in higher inflation and higher interest rates, an expected slowing in economic growth will create a more challenging environment for some customers,” the bank said in a stock exchange filing.

Westpac’s share price was down 2.2 per cent after the announcement, dragging on the ASX’s financial index which was off 0.1 per cent. The S&P/ASX200 was up 0.7 per cent early on Tuesday.

Australia’s second-largest bank by assets after Commonwealth Bank of Australia said its weaker outlook has already prompted higher credit provisioning, including overlays for energy-exposed sectors. Its provisioning for potential bad debt is now at its highest since the Covid-19 pandemic.

Westpac also said it increased its credit impairment charge to 10 basis points from 6 in the first half last year across its A$879 billion (S$794 billion) lending portfolio.

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Lending growth in the first half reached 4 per cent and deposits grew 3 per cent, which Westpac said showed its balance sheet was strong in the face of geopolitical volatility.

Separately, reported net profit after tax will take a A$75 million hit from costs tied to the planned sale of its RAMS mortgage portfolio, a non-core business being offloaded to a consortium that includes Pepper Money, KKR and PIMCO.

The charge reflects transaction and execution costs rather than the economics of the sale itself, the bank said. REUTERS