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Bad loans key to Westpac dividend as payout suspended

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“We will monitor the situation, we will look at our book and the performance of the credit book is really the key piece to look at,” he said.

“If the economy comes back on a quicker path, then maybe a decision could be earlier, if it comes back on a slower path then the last time, we would look at it as part of the full-year results.”

In an attempt to minimise the economic carnage caused by the pandemic, banks have deployed loan repayment deferrals and emergency loans to hundreds of thousands of customers in recent months. Westpac said 105,000 mortgage accounts worth $39 billion had been put on hold, alongside 31,000 business loans with a value of $8.2 billion.

Mr King, who was appointed CEO last month after acting in the role since last year, also flagged potential asset sales as he seeks to narrow the lender’s focus to banking.

The bank has had re-hired Westpac executive Jason Yetton to oversee a review of businesses including wealth platforms, superannuation and retirement products, investments, general and life insurance, and auto loans. The businesses would be put into a new division and could be sold off, the bank said.

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Westpac’s results were dominated by the impact of COVID-19, which has lenders bracing for a wave of bad loans, which directly eat into profits.

The bank’s closely watched common equity tier 1 (CET1) capital, an important gauge of strength, was 10.8 per cent of risk-weighted assets, above the level of 10.5 per cent targeted by regulators.

But, as previously disclosed by the bank, profits in the half were hit by a $1.6 billion charge for COVID-19 and a $900 million provision for the penalty over the AUSTRAC scandal.

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As the provisions for bad debts were announced in the weeks leading up to the result, some analysts said the underlying results from Westpac were not as weak as feared. Its stock price closed 2.8 per cent higher, at $15.77.

The dividend suspension is the latest move by an Australian bank to defer its dividend decision, following ANZ Bank last week and Bank of Queensland last month.

Plato Asset Management managing director Don Hamson said he did not expect Westpac or ANZ to pay dividends in the current half. “That’s going to be a six month hole in investors’ incomes,” he said.

Macquarie analyst Victor German also forecast there would most likely not be a dividend paid this half. “Like ANZ, WBC’s CET1 position of 10.8 per cent is at the lower end of peers, and we expect WBC will not pay the dividend unless conditions improve materially,” Mr German said.

Mr King painted a bleak picture on the outlook, saying the economy would contract sharply this quarter and not bounce back until late in the December quarter. The bank’s base case assumed a 15 per cent decline in house prices and a further 5 per cent next year.

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