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Westpac rewards shareholders

Westpac (ASX:WBC), the country’s second-largest bank, announced on Monday morning that it will reward its shareholders with a final dividend of 72 cents per share, up from 64 cents per share the previous year. This increase will bring the total dividend for the year to $1.42 per share, up from $1.25.

In addition to the increased dividends, Westpac also unveiled a $1.5 billion share buyback program, which is smaller than the potential $2 billion buyback recently announced by its smaller banking rival, Macquarie, following a 38% decline in first-half profit.

However, Westpac’s buyback is significantly larger than the $1 billion buyback disclosed by the Commonwealth Bank during its full-year results in August.

Westpac reported a record net profit of $7.2 billion for the 2022-23 fiscal year, representing a 26% increase. This followed a 22% rise in first-half profit to $4 billion. The bank has now abandoned the use of cash earnings as a profit measure.

Net interest margins, a crucial indicator of bank profitability, increased by 0.02 percentage points to 1.95%. Despite these gains, the bank cautioned that they were “partly offset by tighter loan spreads due to intense competition as well as an increase in low-returning liquid assets.”

Westpac and its competitors will have the opportunity to protect these margins if the Reserve Bank raises the cash rate by 0.25% the following day, with banks potentially passing on the increase to their key lending rates, particularly on home loans.

CEO Peter King stated that the result delivered “a better return on equity, higher earnings per share, and increased net profit.” He also acknowledged that the bank’s expenses had eased by 1%, but there was recognition of the need to further reduce the cost-to-income ratio relative to peers. Impairment provisions were increased to position the bank’s balance sheet appropriately for the uncertain economic outlook.

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