Why is the Westpac (WBC) share price bucking the trend today?

Posted: 9 May 2022 1:24 pm
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Shares in the lender are up only 4% in the last 6 months, continuing this run today.

Shares in Westpac (ASX: WBC) are among the top traded shares on the ASX and also the only one of the Big Four banks in the green.

The stock is up 2.4% to $24.40 at the time of writing.

By comparison, each of the 3 other major banks – Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) were down between 0.2% and 1.2%.

Why is the Westpac stock price on a high?

Westpac shares are getting a thumbs up from investors after the Big Four lender outlined its first half results on Monday, which on the face of it did not look encouraging.

Westpac said first half cash earnings dropped 12% from a year ago to $3.1 billion, amid competitive pressures in the home loan market and increased provisions for bad debts. Statutory net profit for the 6 months to 31 March also dipped 5% from a year ago to $3.28 billion.

But the headline profit numbers were better than analyst estimates. Investors were also relieved after Australia's second-biggest bank by market value cut costs and stuck to its $8 billion cost reduction target by FY24, unlike its more fancied rivals.

Last week, NAB became the second major bank after ANZ to walk away from its target of reducing absolute costs, both banks saying emerging inflationary pressures and the need to make investments to support growth opportunities made it difficult to stick to the original approach.

In comparison, Westpac said costs were down 10% from the same period a year ago and helped offset the decline in revenue and increase in impairments.

Competition

But Westpac's results also had plenty of amber flags which are likely to limit gains in its share price in the near term.

Earnings in its key consumer division, which includes the home loans business, slid 15% on the back of ongoing stiff competition in the market, particularly as investor lending dropped off.

Net interest margin, a key profitability indicator, slid 22 basis points from a year ago to 1.85% in the first half. It also booked an impairment charge of $139 million as it set aside more funds to cover bad debts related to recent floods in Australia and broader global uncertainty.

"The first half of 2022 has been challenging for many customers. Floods, the lingering effects of the pandemic and the impact of the war in Ukraine have set many customers back and created uncertainty," Chief Executive Peter King said in a statement.

Westpac is forecasting for economic growth and credit growth to remain robust in 2022, before slowing down in 2023 to 2.5% and 4.3% respectively. It says demand for housing has already shown some signs of easing and rising interest rates are likely to contribute to a moderation in house prices next year.

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