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The nightmare for banks continues as Westpac posts massive profit drop

Business

Westpac has added to the woeful year for banks after announcing a 66 per cent fall in profit to $2.29 billion.

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Billions have been wiped from the earnings of the major banks this year because of the impact of the Banking Royal Commission, the bushfires, money laundering fines and COVID-19. For Westpac, the drop in earnings was a massive $4.5 billion.

Impairment charges were $2.3 billion higher than 2019, reflecting the impact of the pandemic, which it said had led to a significant increase in credit losses. It said $614 million had been written down from the value of its insurance business as well as lower returns from the goodwill of its auto business. The total also included the writedown and impairment of capitalised software.

However, Westpac will resume its dividends. A final, fully franked dividend of 31 cents a share will be paid, which it said was the maximum allowed under guidelines from the regulator, the Australian Prudential Regulation Authority.

Revenue was down 2 per cent to $20 billion. While the bank said the environment was too uncertain to make forecasts, it did believe that about half of the personal income tax announced by the Federal Government would be spent and business would respond to the generous depreciation allowances to buy more equipment.

Chief executive Peter King said increased expenses during the year to handle the pandemic impacts had been offset by $400 million in productivity gains.

“While this year has presented many challenges, we have made important changes to the business, including introducing a new operating model, progressing the exit of several businesses, adding more than 400 people to our risk, compliance and financial crime team and completing the appointments in my executive team,” King said.

He said $1.3 billlion had been paid in fines to AUSTRAC over money laundering charges.

“We have taken accountability for our mistakes and commenced a process of fundamental change, which has included refreshing the board and management and elevating oversight of financial crime, compliance and conduct,” King said.

The bank also paid $280 million to customers during the year as part of its customer remediation program.

“We are moving back to core banking with a sharper focus in Australia and New Zealand,” King said.

“We are addressing the issues that have impacted performance in our mortgage book and expect to see improvement start to flow in 2021.”

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