COVID-19 and anti-money laundering fine results in 66% profit drop for Westpac

AU$2.29 billion in statutory net profit for 2020.
Written by Asha Barbaschow, Contributor

Westpac Banking Corporation has suffered a 66% profit drop this year, posting AU$2.29 billion for 2020. Cash earnings came in at AU$2.6 billion, down AU$4.2 billion when compared to the same period last year.

The bank's consumer segment provided AU$2.7 billion of the yearly cash earnings, business accounted for AU$734 million, institutional provided AU$332 million, and Westpac New Zealand pulled in AU$649 million.

Revenue dropped 2% to just over AU$20 billion.

The red and white bank has attributed the profit drop to COVID-19, along with "its own issues". Such issues included a AU$1.3 billion fine for breaching the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) over 23 million times. 

In September, the Australian Transaction Reports and Analysis Centre (Austrac) came to an agreement with Westpac to settle the anti-money laundering and counter-terrorism financing allegations that were raised by the watchdog in November 2019.

"2020 has been a particularly challenging year and our financial result in disappointing," CEO Peter King told shareholders on Monday.

"With our three priorities of fix, simplify, and perform, we are becoming a simpler and stronger bank with a renewed focus on culture to execute and improve performance," he later added.

Under the banner of "fix", the bank is hoping to address its risk management, risk culture, focus on customer remediation and "pain points", and fix its IT complexity. "Simplify" will see Westpac exit non-core businesses and "transform using digital and data to enhance the customer experience" while "perform" will focus on long-term results, such as for shareholders.

In addition to the Austrac proceedings, Westpac this year also settled two US class actions and paid customers AU$280 million for all remediation programs.

It also set up a new financial crime compliance and conduct function and implemented a new complaint management system.

2020 also saw Westpac begin the rollout of a new banking app that is currently being made available to more customers.

"Modernising and simplifying our technology and using digital to create better customer experiences remains a priority," King said. "We have rolled out our new mobile banking app to 240,000 customers and it will be further enhanced before being rolled out to our entire customer base."

It also finally gave customers access to Apple Pay in April.

As of September, the bank has 5.9 million digitally active customers. It added that in the second half of the year, it processed 277 million digital transactions. Its chatbot also resolved 71 of the 942 interactions it had with customers in the second half of 2020.

Technology expenses for the bank in the 12-month period was AU$2.6 billion. The increase in spending was a result of staff transitioning to remote work in the peak of COVID-19 restrictions as well as costs attributed to its Customer Service Hub.

"Our Customer Service Hub continues to simplify, standardise, and digitise the way we connect with our customers as one bank with multiple brands," King claimed. 

Westpac in July announced the standing up of a new group operating office that combines the functions of its existing group operations and group technology arms.

After setting aside just over AU$1 billion for Austrac proceedings in its half-year financial results -- comprising a provision for a potential penalty of AU$900 million and AU$127 million for a response plan -- it reported just shy of AU$1.2 billion in net profit for the six month period.


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