Westpac expected to maintain solid capital despite profit drop

Credit risk is expected to remain low.

Westpac Banking Corporation is expected to maintain solid capital levels despite its decision to ramp up its share buyback program.

The Australian bank announced a 3% decrease in net profit after tax for the year ending 30 September 2024.

The bank has announced an A$1b increase in its A$2.5b share buyback program, which is about 75% complete.

Westpac also announced a dividend payout ratio of 73%, which is at the upper end of its 65%-75% payout range.

However, despite “competitive pressures”, Westpac’s earnings will remain sound by global and domestic comparison, according to S&P.

Credit risk is expected to remain low over the next two years, to around pre-pandemic levels of 15 basis points (bp).

Westpac’s risk-adjusted capital ratio is forecasted to hover between 11.5% to 12% over the next two years. Its common equity Tier 1 ratio (CET1 ratio is 12.1% as of 30 September 2024.

Westpac signalled that it intends to manage its CET1 ratio above its target range of 11.0%-11.5%, higher than the Australian Prudential Regulation Authority's capital requirement of 10.25%.

“Nevertheless, banks in Australia, including Westpac, remain exposed to a jump in credit losses due to high household debt, elevated interest rates and consumer prices, and global economic uncertainties,” S&P said.