Westpac scraps interim dividend

Sydney

WESTPAC Banking Corp scrapped its interim dividend on Tuesday, becoming the first major Australian bank to officially cancel a shareholder payout amid the coronavirus crisis, knocking its share price lower.

Australia's banks have been grappling with record-low interest rates, higher default risk and loan holidays for struggling borrowers, as the country faces its first recession in nearly three decades.

With many investors relying on bank dividends for their retirement income, the pressure to maintain payouts is intense, but analysts flagged Westpac's shrinking capital levels could lead it to cancel its final payout as well.

In a quarterly update on Tuesday, the country's second largest lender said its core capital level had shrunk one basis point to 10.80 per cent due to higher capital allocations to riskier exposures, a level close to the 10.50 per cent baseline preferred by regulators.

Westpac said it booked A$826 million (S$816 million) in credit impairment charges during the quarter, and increased provisions to cover for bad debts, as mortgage stress was emerging, customers were being downgraded and delinquencies were increasing.

"Westpac's priority has been to remain strong so we can continue supporting customers through this challenging period," Westpac's CEO, Peter King said. "While there have been some signs that the economy is performing better than early expectations, significant uncertainty remains."

The bank reported third-quarter cash earnings of A$1.32 billion, above the first-half average as coronavirus-related impairment charges eased. However, net interest margin was eight basis points below the first-half average, hurt by record low rates. REUTERS