Westpac profit tumbles on compensation costs and lending slowdown

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Westpac’s half-year profit has fallen by almost a quarter as the cost of customer compensation mounts and home-lending growth stagnates.

The bank’s net profit fell 24 per cent to $3.2 billion for the half-year to March 31, while its preferred measure of cash profit (which excludes a number of one-off costs) was down 22 per cent to $3.3 billion — in line with analyst expectations.

The bank has set aside almost $1.5 billion over the past three years for customer compensation schemes, having announced its latest increase in provisions last week.

The bank’s crucial net interest margin — the profitable gap between what Westpac pays to borrow money and the rate it lends it out at — dropped sharply from 2.28 to 2.12 per cent.

Westpac has also warned lending growth will continue to slow to 3 per cent in the bank’s current financial year and 2.5 per cent in the next one, putting further pressure on earnings over that period.

The bank is expecting home prices to remain soft and home building activity to fall.

In response, the bank said it had laid off the equivalent of almost 800 full-time staff to cut costs, but would maintain its dividend at 94 cents.

More to come.