Westpac capital position to remain strong following A$3.5b buyback
Westpac is one of Australia’s four major lenders.
A positive economic outlook and its recent divestment has underpinned Westpac Banking Corp.’s ability to undertake a share buyback whilst maintaining a strong capital position according to S&P Global Rating.
In September 2021, the bank announced that it is undertaking an off-market share buyback of up to A$3.5b ($2.60b), in addition to a dividend payout of A$2.2b ($1.64b) for the second half.
S&P said that Westpac’s capital levels will remain strong, though the result of the buyback will drop Westpac’s common equity tier 1 (CET1) ratio by 80 basis points from 12.3% as of 20 September 2021. However, this still remains well above the Australian Prudential Regulation Authority's benchmark of 10.5% CET1 ratio for unquestionably strong capital levels.
“Westpac's continued divestments and process simplification should support a lower cost base and help to offset margin pressure in the current low interest rate environment. Westpac's fiscal 2021 cash earnings of A$7.0 billion, excluding notable one-offs, were up 33% over the previous year, primarily driven by a A$0.6 billion write back of credit provisions compared with impairment charges of A$3.2 billion in the previous year,” S&P said.
S&P believes that the recovering economy, falling unemployment, and improved consumer and business sentiment should help temper the risks to the Australian banking system.