The Westpac Banking Corp (ASX: WBC) share price is on watch after the major bank released its FY21 third quarter update.
Westpac’s FY21 third quarter
The bank said that its mortgage book in Australia improved during the period. Its percentage of Australian mortgages that were overdue for more than 90 days decreased by 9 basis points (0.09%) to 1.11%. However, the New Zealand mortgage book saw an increase of 4 basis points (0.04%).
Overall, Westpac said that its stressed assets to ‘tangible common equity’ (TCE) decreased by 9 basis points to 1.51% over the quarter. That’s a good change.
The Westpac loan book seems to be looking a bit better. For the three months to 30 June 2021 at least, time will tell what the current lockdowns do to the situation. It has seen a “relatively small number” of new repayment deferrals related to the recent lockdowns, to 11 August 2021.
However, provision cover for losses was little changed. ‘RWA’ means risk weighted assets – loans and so on – the weighting part means credit cards are more risky than home loans for example. The total provisions to credit RWA was 1.55%, down 4 basis points (0.04%). Its provisions are slightly lower for its loan book, which is hopefully a good sign as long as it hasn’t under-provisioned.
Growth
The bank said its risk weighted assets grew 2%, or $8.5 billion, over the quarter. This was mostly higher credit RWA.
Australian mortgages and Australian business lending grew at “1x” the overall loan market in the third quarter of FY21.
However, margins are expected to be lower than the first half of FY21 and FY21 expenses are expected to be higher than FY20, excluding notable items.
Balance sheet strength
Westpac revealed that its common equity tier 1 (CET1) ratio was 12% at June 2021, down from 12.3% at March 2021. It dropped due to the dividend payment and higher RWA.
Westpac share buy-back incoming?
Westpac said that given excess capital and franking credits, the board will consider a return of capital, with an update expected at its FY21 result.
A buyback can be a boost for the Westpac share price because it reduces the amount of shares in the market. So it boosts the per-share statistics like earnings per share (EPS) which theoretically can also increase the Westpac share price. Buybacks are pretty popular at the moment.
Whilst the FY21 result may be promising, I don’t think Westpac has a strong outlook for the prospect of compounding its profit year after year at a good pace. For that reason, there are other ASX dividend shares I’d rather look at.
