Westpac annual profit hit by money laundering fine and recession
Westpac's annual profit has slumped by two-thirds after it was fined $1.3 billion for 23 million breaches of money laundering laws.
The big bank says unaudited full-year net profit fell by 66
per cent to nearly $2.3 billion for the year to the end of September because of
writedowns and the economic recession.
Cash earnings fell 63 per cent from nearly $6.9 billion in
2019 to $2.6 billion in 2020.
One-off items like the $1.3 billion penalty for breaking
anti-money laundering laws lowered earnings.
And Westpac took a $3.2 billion hit from the impact of the
coronavirus recession, compared to a writedown of $794 million last year.
The bank's chief executive Peter King said it had been a
difficult year.
"Our earnings have been significantly impacted by
higher impairment charges, increased notable items and the sharp decline in
economic activity."
Dividends restart but slashed
The bank paid a dividend to investors for the second half of
the financial year after no payout for the first half.
However, their final dividend was cut by nearly two-thirds
from last year to 31 cents a share, fully franked.
Big banks have been ordered by the banking regulator APRA to
limit their dividend payouts to half of annual net profit to preserve their
capital buffers.
Westpac's share price has slumped 26 per cent so far this
year.
Record fine over money laundering and facilitating child
abuse
In September, the bank agreed to pay a $1.3 billion fine to
settle a case brought by the financial crimes regulator Austrac.
The regulator uncovered 262 customers who made suspicious
transactions to the Philippines, other parts of South-East Asia and Mexico,
exhibiting signs of engaging in overseas child exploitation.
Mr King said the bank had started a comprehensive program to
strengthen its risk culture, which included significant investment in training.
"We have taken accountability for our mistakes and
commenced a process of fundamental change, which has included refreshing the
board and management and elevating oversight of financial crime, compliance and
conduct," Mr King said.
The bank also paid out $280 million to customers in
compensation for financial scandals.
Westpac said the scandals meant that top executives won't be
paid short term bonuses this year, and long term incentives were forfeited
because performance hurdles were not met.
Customers start making loan repayments
Westpac says more home loan and business loan customers have
started repaying their mortgages again, after being granted a repayment holiday
because of coronavirus.
Mr King said more than two-thirds of mortgage customers had
restarted paying their loans.
The number of home loans in deferral fell from 146,000 loans
worth $54.7 billion six months ago to 41,000 accounts worth $16.6 billion.
Small business loans that were deferred dropped from 32,900
worth $10.1 billion to 4,300 accounts worth $1 billion.
Mr King said he expected to see an improvement in the bank's
mortgage book next year.
However, he warned that while the bank's economists expect
growth to improve over 2021 and 2022, unemployment would remain high for some
time.
"We remain in an uncertain environment, however the
recent budget has provided significant stimulus to businesses and
households," he said.
Credit ratings agency Standards & Poor's said Westpac's
earnings capacity remained strong despite "significant blows from the
COVID-19 pandemic" and the result was broadly in line with its
expectations.
It said the bank bolstered its capital buffers over the year
and could cut dividends again and raise capital if needed with the likelihood
that more borrowers could default on their loans as stimulus is wound back.
"Realised credit losses are likely to increase next
year after reduction in support to stressed borrowers from two channels: fiscal
support from the Government, and the loan repayment moratoriums extended by the
banks," it said.
Last week, ANZ saw its annual net profit drop 40 per cent to
$3.6 billion.
National Australia Bank will release its annual profit
results later in the week.
RBA rate cut tipped tomorrow
The Reserve Bank is expected to cut official interest rates
to a record low of 0.1 per cent at its meeting tomorrow.
Mr King would not speculate about whether or not he thought
the RBA would reduce rates at the meeting but he said authorities were doing
what they could to navigate the country "through a pretty tricky
time".
"When you think about potential moves and what the
Reserve Bank does, they have very good information and so we'll respond
appropriately to what they do," he said.
"We know that depositors are very much hurting in this
environment, because it is savers who are getting lower returns on their
investment."
Westpac shares were sold off sharply in early trade but
ended off their lows at $17.80, down 0.6 per cent.
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