AU$3.4 billion profit and a new SOC for Westpac in first half

The red and white bank is returning to form, seeing profit increase by 189% as it puts Austrac proceedings and a hit from COVID-19 behind it.
Written by Asha Barbaschow, Contributor

Westpac has seen profit increase, posting AU$3.4 billion for the first half of the financial year, a 189% increase over last year.

In the first halves of both 2019 and 2020, the bank copped steep impairment costs associated with Australian Transaction Reports and Analysis Centre (Austrac) proceedings, including a provision for a potential penalty. COVID-related impacts were also to blame for Westpac's 2020 "disappointing" first-half AU$1.2 billion profit.

There were no costs or provisions associated with the Austrac proceedings in Monday's results.

In its "promising start to the year", Westpac reported AU$10.7 billion in revenue.

Technology expenses in the six months to 31 March 2021 were AU$128 million -- 10% higher than last year, totalling AU$1.4 billion. Westpac said excluding notable items, technology expenses were AU$19 million higher from software licensing costs to support increased staffing numbers.

Westpac ended the six-month period with 38,747 staff, up from the 34,199 it boasted a year prior.

Other tech expenses increased AU$40 million from costs relating to its Customer Outcomes and Risk Excellence (CORE) program and higher COVID-19 expenses. This was partly offset by a "revaluation of fintech investments".

Westpac's venture capital firm Reinventure will decouple itself from the banking giant and raise external funds for future investments. The revaluation of Coinbase Inc -- a digital wallet invested in by Reinventure -- added AU$546 million to non-interest income for the bank.

Other major technology initiatives included further boosting of document and data security, which Westpac said was centred on an "improved responsiveness to applying security patches".

It also implemented a new system to share files with third parties to, among other benefits, eliminate the need for using external drives to share information. The bank also extended its data loss prevention function, including measures to block loss of sensitive data and strengthened document and email security through new data and email classifications program.

Branch IT infrastructure underwent a makeover and Westpac said the upgrade has improved banker productivity and customer service speed.

The red and white bank also stood up a new command centre to "improve management of cyber threats".

"Westpac continues to enhance its systems and processes to mitigate cybersecurity risks, including in relation to third parties," it said.

Westpac's capitalised software balance was almost AU$2.3 billion, a AU$75 million decrease compared to 31 March 2020.

In 2020, Westpac underwent what CEO Peter King labelled a "significant change" with a new strategic direction, changes in the board and management, establishment of the specialist businesses division to manage non-core businesses, and a reorganisation of its operations, including fixing internal reporting structures.

"At the same time, we expanded initiatives to fix our issues, materially enhance our management of risk, and improve our risk culture," the bank told shareholders.

"We have made good progress on our strategic priorities of fix, simplify, and perform," King added. "This included finalising our plan to improve financial and non-financial risk governance, announcing the sale of three businesses, progressing the consolidation of our Asia operations and returning our mortgage book to growth."

Over the ditch, Westpac New Zealand reported after-tax profit of NZ$583 million, up from the NZ$295 million reported in the corresponding six-month period.

Expenses were up 3% from increased technology spending and higher risk, regulatory, and compliance costs, including implementing the RBNZ's BS11 outsourcing requirements, the company told shareholders.

Westpac New Zealand CEO David McLean also announced his retirement, after 20 years with the bank.

McLean joined Westpac New Zealand in 1999 and held a number of senior roles across retail and institutional banking, before being appointed CEO in February 2015.

McLean will remain in the role until June 25, after which time Simon Power, currently the general manager of institutional and business banking, will act as CEO, subject to regulatory approval.

Westpac said a global search is underway for McLean's replacement.


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