Westpac profit falls 25%, CEO Gail Kelly says tax on deposits an issue

Westpac’s profit has fallen 25% in the last six months.

The banking giant’s net profit for the six months to March 31 dropped to $2.97 billion, from $3.96 billion in the previous six months.

Westpac says it expects funding costs to remain high and lending growth to be modest.

“Funding costs are expected to remain elevated, with competition intense, particularly for retail deposits,” the company said in a statement.

Westpac CEO Gail Kelly, cited the challenging economic environment in which the bank is currently operating.

“This is a sound result in a challenging environment,” Kelly said.

The bank blamed a rise in bad debts and costs associated with setting up the Bank of Melbourne for dragging its profit lower.

Chief financial officer Phil Coffey declined to comment on whether the bank would cut its home loan rates.

Banks have been competing for funds for their deposit accounts as a funding source for loans.

“It really is a function of how much competition there is for deposits, and right now you would say that competition is not easing up,” he told reporters.

Westpac sources about 64% of its funds to lend from retail deposits.

The bank reports it will pay a fully franked dividend of 82 cents per share, up two cents.

Kelly told LeadingCompany tax imposed on interest earned by retail depositors hurts the size of the funding pool banks are fighting for and said that “it would be helpful if more was to be done in this regard”.

Westpac has attracted about 23% of the deposit pool to fund its loans.