Westpac’s Fiscal H1 Earnings Show Resilience Amid Revenue Headwinds, Dividend Lift Reflects Strategic Priorities

Westpac Banking Corporation’s fiscal first-half 2025 results underscore a mixed performance, with net profit rising 5% year-on-year despite a decline in total revenue. The bank’s focus on cost discipline, capital efficiency, and shareholder returns positions it as a cautious optimist in a challenging macroeconomic landscape. Here’s what investors need to know.

Revenue Challenges, Profit Growth, and Strategic Adjustments

Total revenue (net operating income) dipped 2% to AUD 10.99 billion in the six months to March 2025, driven by a 3% fall in non-interest income. This decline stemmed from a 15% drop in trading and other income, offset only partially by a 10% rise in wealth management fees. Meanwhile, net interest income grew 2% to AUD 9.57 billion, supported by higher interest rates and disciplined balance sheet management.

The bank’s net profit after tax (NPAT) rose to AUD 3.46 billion, a 5% increase, thanks to cost savings and lower provisions for loan losses. Provisions fell 15%, reflecting improved credit quality, while operating expenses rose 6% due to investments in technology and the UNITE cost-reduction program.

Dividend Lift: A Modest Increase Amid Cautious Capital Management

Westpac increased its interim ordinary dividend to 76 cents per share for fiscal H1 2025, up from 75 cents in the final dividend of fiscal 2024. While this represents a modest increase, it contrasts with the 100 cents ordinary dividend paid in the interim period of fiscal 2024, which included a 15-cent special dividend. The removal of the special dividend highlights Westpac’s focus on preserving capital amid ongoing margin pressures and rising operational costs.

The dividend payout ratio remains steady at 75%, signaling management’s commitment to shareholder returns even as profits face headwinds. Investors should note that the dividend hike is conservative, aligning with the bank’s goal to achieve a cost-to-income ratio of 55% by 2026 through an additional AUD 400 million in cost savings.

Key Drivers and Risks

• Interest Rates and NIM Pressures: Core net interest margins (NIM) remained flat at 1.80%, constrained by competitive lending rates and rising term deposit costs. Further rate cuts or prolonged high rates could impact profitability.
• Cost Discipline: The AUD 300 million in annual savings already achieved through the UNITE program bodes well for future efficiency. The 2026 cost target of AUD 400 million could boost margins if achieved.
• Credit Quality: Loan loss provisions declined, reflecting robust credit management. However, geopolitical risks and high household debt remain threats to future credit performance.

Guidance and Market Reaction

Westpac upgraded its full-year guidance, projecting 2-3% growth in underlying cash profit for fiscal 2025. The stock rose 2% in after-hours trading following the results, suggesting investor approval of the bank’s balance between returns and resilience.

Conclusion: A Steady Hand in Uncertain Times

Westpac’s H1 results paint a picture of a bank navigating headwinds with strategic focus. While revenue declines and cost inflation pose challenges, the 5% profit growth and maintained dividend underscore operational discipline. The bank’s emphasis on technology, capital efficiency, and a 75% payout ratio signals a cautious yet confident approach to shareholder value.

Investors should monitor two key metrics: whether the cost-to-income ratio improves to 55% by 2026, and if net interest margins stabilize amid rate-sensitive environments. With a CET1 ratio of 12.4% (well above regulatory minima) and a shareholder return plan of AUD 1.5 billion through dividends and buybacks, Westpac appears positioned to weather near-term pressures. For now, its stock merits consideration for investors seeking a steady, if unspectacular, financial institution play.

Data Highlights:
- Net Profit Growth: +5% to AUD 3.46 billion (H1 2025 vs. H1 2024).
- Dividend Increase: 1 cent to 76c ordinary (H1 2025 vs. final 2024 dividend).
- Cost Savings: AUD 300M realized, targeting AUD 700M total by 2026.
- Credit Quality: Provisions down 15%, with non-performing loans stable.

Westpac’s results reflect a bank prioritizing resilience over rapid growth—a pragmatic stance in an era of uncertain economic conditions.