Westpac’s financial year runs on a different calendar to CBA. The Westpac financial year runs to September, whereas the CBA financial year finishes on 30 June 2023.
We won’t know what’s in the Westpac result for another three-ish months, but we can gain some insights into what’s going on in the banking sector by looking under the hood of CBA.
Arrears are rising
CBA is starting to see a rise in arrears. In terms of home loans that are overdue by at least 90 days, the percentage increased from 0.43% at December 2022 to 0.47% at June 2023. But this wasn’t much of a change. The percentage of home loans overdue by 30 days increased materially more, going from 0.82% to 0.92%.
The personal loan arrears overdue by 90 days has increased by even more, from 0.95% at December 2022 to 1.19% at June 2023.
While CBA and Westpac may have different borrowers, I don’t think it would be too much of a stretch to suggest that Westpac may also be seeing a rise in its loan book arrears as well. This could have a key future influence on the Westpac share price.
NIM is being challenged
CBA revealed that the net interest margin (NIM) rose by 17 basis points (0.17%) over the 2023 financial year to 2.07%.
The increase in the NIM was explained by the rising interest rate environment. Some banks took longer to pass on interest rate rises to savers than borrowers, and banks can also earn more on transaction accounts where they don’t pay interest to customers.
I think it’s likely that Westpac will also have seen a higher NIM in FY23 than FY22, with the same dynamics at play.
However, CBA also said that its NIM decreased in the second half by 5 basis points compared to the first half of FY23. CBA said that its NIM was challenged by increased competition, particularly in home lending.
The monthly ‘spot’ margin “peaked in late 2022” and it’s continuing to manage headwinds for the margin.
Many ASX bank shares have been talking about increased competition, and Westpac may also be suffering the same headwinds for its margins, which may impact its share price.
There’s room for the dividend to grow
CBA’s board decided to increase the final dividend from $2.10 per share to $2.40 per share, an increase of 14%. The full-year dividend of $4.50 per share was an increase of 17%. That was despite the full-year cash net profit after tax (NPAT) only rising by 6% to $10.16 billion. Commsec estimates suggest that Westpac shares are going to generate earnings per share (EPS) of $2.12, which can fund an increase to the dividend per share of $1.40. That would represent an increase of 12% year over year and would be a grossed-up dividend yield of 9%.