Westpac Banking Corporation's full year profit has declined 10.7 per cent but Australia's second biggest lender says its business has strong momentum going into fiscal 2010 as the bad debt cycle stabilises.
Net profit was $3.446 billion for the 12 months to September 30, compared with $3.859 billion in the prior corresponding period, Sydney-based Westpac said in a statement on Wednesday.
Pro-forma cash earnings, the bank's preferred measure because it takes out fluctuations based on unrealised losses on asset values, fell eight per cent to $4.627 billion. The pro-forma results treat St George as part of the group for the past two fiscal years.
The consensus analyst forecast for fiscal 2009 cash earnings was $4.45 billion, according to Reuters data.
"Westpac has delivered a sound financial result during a tumultuous year," chief executive Gail Kelly said in a statement.
"The group has successfully expanded its customer base and distribution capability, providing a solid foundation for healthy returns for shareholders, and better service and product offerings for our customers."
The results show that Westpac, like its three domestic rivals, has negotiated the financial crisis and downturn with limited damage to its profit.
The bank's profit, which was mainly hurt by bad debts in fiscal 2009, can only increase as impairments recede.
Pro-forma revenue jumped 13 per cent to $16.76 billion, due to strong deposit growth and Australian mortgage growth as the bank increased its market share.
Chief financial officer Phil Coffey told journalists the bank was probably at the peak of the bad debt cycle.
"The credit cycle is stabilising," he said on Wednesday.
"Bad debts are unlikely to move higher than 2009 levels."
Westpac's total provisioning for bad and doubtful debts rose to $4.38 billion in fiscal 2009, from $2.36 billion, on a pro-forma basis. Impairment charges almost tripled to $4.29 billion.
Mr Coffey said impairments in the first half had been dominated by big corporate collapses - Allco, Babcock & Brown and ABC Learning - while the second half was a result of the economic slowdown hitting small to medium businesses.
That didn't mean that Westpac wouldn't increase lending.
"Credit growth is likely to continue," Mr Coffey said.
But he warned there were going to be customers who would continue to face difficulties, particularly among medium sized businesses.
Westpac has been able to increase its lending and deposit market share to the second biggest in Australia, after Commonwealth Bank of Australia Ltd, mainly as a result of its takeover of St George, which was completed in December 2008.
The integration was going smoothly and synergies, the value added to profit through cost savings in the merger, of $143 million had been achieved, 19 per cent ahead of schedule.
Mr Coffey said Westpac's merger with St George had been "transformational" and the bank wasn't actively looking for further takeover opportunities, at this stage.
"We're not actively scanning the market," he said.
"If something came along, that would be different."
Westpac reported that its Tier 1 capital ratio had increased to 8.1 per cent, as at September 30, from 7.8 per cent 12 months earlier.
"We are very comfortable where our capital is," Mr Coffey said.
But the bank said average funding costs will probably continue to rise due to intense competition for retail deposits and as wholesale funding is sourced at a cost well above pre-financial crisis levels.
The bank's overall profit was hurt by sharp earnings declines at its institutional bank and New Zealand businesses, where cash earnings fell by 58 per cent and 50 per cent, respectively, as impaired charges lifted.
In contrast, cash earnings rose nine per cent at its retail and business banking operation, underpinned by above system growth in mortgages (up 19 per cent) and deposits (also up 19 per cent).
Westpac declared a final dividend of 60 cents a share, taking the full-year distribution to $1.16 a share, down from $1.42 in fiscal 2008.
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