By Eric Johnston
Update Westpac, Australia's second-largest lender by market value, has reported a modest drop in third-quarter profit from the two previous quarters, reflecting a slowdown in borrowing by business and retail customers.
The $1.55 billion cash profit for the quarter, while up almost 11 per cent from a year ago, was lower than the average profit rate of $1.59 billion for each of the preceding two quarters.
Westpac shares fell at the opening of trade, losing as much as 94 cents, or 4.4 per cent, to $20.23, as investors took a negative view of the company's latest update. The other big banks were down more than 1 per cent.
The quarterly tally also fell short of the $1.6 billion average estimate of seven analysts surveyed by Reuters.
And in a sign parts of the Australian economy could be slowing, the bank also reported an increase in the level of charges for bad debts, with impairment costs of about $300 million for the quarter.
"The June quarter 2011 saw the operating environment become more subdued with consumers increasingly cautious and larger businesses continuing to de-leverage," Westpac chief executive Gail Kelly said.
"This was reflected in slowing system credit growth in the quarter and weaker markets," she said.
Despite the tough market, the bank managed to lift revenue by 1.5 per cent, helped by some widening of lending margins. Westpac's reported net profit after was $1.45 billion.
In May, Westpac reported a 7 per cent increase in first-half cash profit to $3.17 billion. That result was boosted by a drop-off in charges for bad debts.
Even with the dip, the third-quarter cash profit puts the bank on course for another year of record profit, but investors are expected to turn their attention to a slowing asset growth environment and global economic turmoil that can raise funding costs and hurt margins.
Westpac's quarterly update follows strong results by two of its rivals among the nation's big four banks. Last week National Australia Bank reported a third-quarter profit of $1.4 billion, suggesting it is likely to deliver a full-year cash profit of $5.4 billion. Commonwealth Bank delivered a 12 per cent increase in full-year cash profit to a record $6.84 billion.
ANZ is scheduled to release its quarterly update later this week.
Lending stagnates
Westpac's quarterly figures will reinforce the view among investors - and much of the country - that the overall economy is slowing at a time when the global outlook has turned much gloomier.
Banks are already battling lending growth falling to three-decade lows, while competition for customers remains intense.
Westpac's net interest margin - a key contributor of profit - was up about 4 basis points the third quarter, improving on the first-half margin of 2.08 per cent.
Mrs Kelly said expenses during the quarter had been flat, however the subdued environment required the bank to be more hawkish on costs.
She said the company had embarked on a new round of "productivity initiatives" during the quarter as part of efforts to keep Westpac's costs under control.
Lending across the bank increased 1 per cent during the June quarter with mortgage sales in Australia matching growth in the broader market. That gain, though, was offset by corporate customers paying down debt.
Deposits were up $2.4 billion during the third quarter with most growth coming in term deposits and transaction accounts. To the end of July, customer deposit inflows have have more than fully funded Westpac's lending growth - easing the need to seek funds offshore.
Charges rise
Mrs Kelly said impairment charges were higher in the third quarter at around $300 million with some increased charges across the flagship Westpac retail bank and St George business.
Even so, the shift in costs amounted to ‘‘little change’’ from the average of the first two quarters after excluding the first-half 2011 changes in economic overlay provisions, she said.
‘‘Across divisions, impairment charges improved in the Institutional Bank and in New Zealand while charges were higher in Westpac RBB and St George,’’ Westpac said.
Mortgage delinquencies of 90 days or longer increased to 59 basis points at June 30, up three basis points in the quarter, although 30-plus days delinquencies were 17 basis points lower, reflecting in part an easing of the disruption borrowers felt from natural disasters.
In the past half year, Queensland has been recovering from huge floods and a big cyclone, while New Zealand has been rebuilding from the two big earthquakes that hit the Christchurch region.
Mortgage share gains
Across the divisions, Westpac's flagship retail and business banking division expanded mortgages at 1.2 times the pace of the broader market while business lending was up 1.8 per cent in a soft market.
Market and trading revenue across Westpac's institutional business was down overall in a flat market.
St George reported a pickup in business over the quarter with higher volumes while the BT Wealth Management division posted increased funds flow into superannuation products, helping to offset weaker markets income.
In New Zealand Westpac continued to grab market share.
"Momentum across the group has been sound, with solid flows in lending, deposits and funds under administration, underpinned by a further deepening of relationships," Mrs Kelly said.
ejohnston@theage.com.au with Reuters, AAP