After beating first-half profit projections, Westpac Banking Corp. (WBC.AX) dropped a cost-cutting objective on Monday, citing inflation.

The country’s No. 2 mortgage provider reported its greatest half-year performance since 2018 as strong interest rate rises to contain inflation allowed banks to charge borrowers more. As a result, income rose 22% to A$4 billion ($2.7 billion).
Visible Alpha’s consensus is A$3.8 billion.

The 206-year-old bank abandoned a plan set in 2021 to reduce yearly expenses to A$8 billion by 2024, which was then raised to A$8.6 billion due to inflation. “In terms of costs, they’re not going to reduce,” he continued.

The bank instead published its cost-to-income ratio to compare its performance to competitors.

Westpac reported first-half costs of A$5 billion, down from A$5.2 billion. The bank’s first- and second-half costs have historically been similar. Afternoon Westpac rose 2%.

“Overall, the result was likely better than feared,” Jarden analysts stated in a client note.

However, a net interest margin “well below” projections raised worries. “While the market likely did not expect the (cost-cutting) target to be achieved, we think the move away from it does suggest some additional downside for earnings,” they said.

Westpac joined ANZ Group Holdings Ltd (ANZ.AX) and National Australia Bank Ltd (NAB.AX) in growing net interest margin by five basis points to 1.96% at the end of March.

Westpac said severe mortgage competition would cut profits in the second half for the whole banking industry.

Mortgages, the foundation of Australian retail bank profitability until recently, are so competitive that most big lenders will focus on other businesses to generate profit.

King said Westpac would focus on institutional banking and support switching from fossil fuels to renewable energy.

Westpac’s interim dividend rose to 70 Australian cents from 61 last year.

On a teleconference with analysts and reporters, King said, “We’re going to see services inflation pretty sticky,” citing the 38,500-employee company’s 4% salary hike.