Update Westpac has warned investors of rising funding costs and consumer defaults, tempering expectations after a stronger-than-expected 33 per cent rise in first quarter cash profit.
The lender, which found itself heavily criticised late last year after raising its variable mortgage rates beyond the Reserve Bank's move, said in its first quarter trading update this morning that while the worst appears to have passed, global uncertainties and risks could still create ripples.
"The market should be happy. The numbers are slightly ahead of expectation," said Mark Daniels, head of equities at Aberdeen Asset Management. "Impairment charges show bad debts have peaked sooner than expected."
Westpac shares jumped 90 cents, or 3.9 per cent, to $24.20 in early trade.
Concerns about bad debts, that had threatened to pull down Australian banks and pushed them to raise $120 billion in capital, are now fading with the Australian economy rebounding faster-than-expected.
"Although we remain cautious on the economic outlook, we believe that the worst of the crisis is now behind," chief executive Gail Kelly said in a statement.
Challenges are still plaguing lenders, and last week No.2 bank Commonwealth Bank said rising funding costs and new capital regulations were a concern.
But Westpac, which saw almost all of its 1.7 per cent growth in lending from home loans in the first quarter, should be better cushioned. In December it raised mortgage rates by almost twice as much as the central bank.
Westpac, which two years ago acquired Australia’s fifth-largest lender St George, said in its trading update that quarterly cash profit jumped to $1.6 billion from $1.2 billion a year ago, on halving of bad debt charges as the Australian economy improved.
Analysts do not provide estimates for quarterly earnings at Australian banks.
Cash profit, widely used by analysts as an indicator of core profit, excludes one-off items and non-cash accounting items and form the basis for dividends.
The bank said asset-impairment charges halved to about $400 million from a year ago, primarily on a stronger corporate loan book.
Top lender National Australia Bank is scheduled to give its quarterly update on Friday and No.4 bank ANZ on February 26.
Westpac shares have fallen 4.8 per cent since end-September compared to a 4.2 per cent fall for the benchmark index.
Reuters
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