Tag: InvestorDaily

‘Weakest reporting season in 4 years’: UBS

Around 17 per cent of Aussie large cap companies downgraded guidance this reporting season as cost pressures weighed on major financial institutions and industrials, via InvestorDaily.

In its final analysis of the February 2019 reporting season, UBS Global Research notes that EPS revisions for the market ex-resources and ex-financials were the weakest since 2010. 

“In aggregate, ASX 100 FY19 earnings expectations were revised down 0.1 per cent through reporting season, with the strong performance of the market in February entirely driven by an expansion in the PE multiple,” the report said. 

“FY19 EPS revisions for the Resources were resilient at +6.6 per cent. However, the Industrials ex-Financials were much weaker, with EPS revised down 2.8 per cent, the weakest reporting season since 2010. The 1.9 per cent downward revision to Financials EPS was also the weakest since 2011.”

The main upside surprise this reporting season came from better-than-expected capital management, according to UBS, that estimates that around 21 per cent of ASX 100 companies delivered larger than expected dividends. 

However, the report flagged cost pressures as the main downside this season. 

“Pockets of cost pressure were the key downside surprise, particularly among insurance and other financials, which have experienced growth in remediation, restructuring and compliance charges related to the royal commission (in addition to revenue headwinds), as well as a mixed bag of Industrials, namely gaming (Crown Resorts and Tabcorp), health care (Ansell and CSL) and materials (Boral, Brambles and James Hardie). Some modest cost pressure also appears to be emerging for the Resources. Companies affected include Alumina, Northern Star Resources and Oil Search,” the report said

In its ‘Reporting Season Progress Update’, UBS flagged that analysts were less optimistic on the outlook than company guidance implied. 

“However, as reporting season progressed, companies downgraded guidance significantly to the weakest February reporting season in four years,” the bank said. 

UBS estimates that 15 per cent of large cap companies upgraded guidance, while 17 per cent downgraded guidance.

“Among large cap companies that upgraded guidance, Ansell, Computershare, Goodman Group, South 32 and Worley Parsons were well received by the market.

“Among large cap companies that downgraded guidance, AMP, Coles Group, REA Group, Scentre Group, Suncorp, Unibail-Rodamco-Westfield, Woolworths, and Whitehaven Coal were not received well.”

“The biggest large cap positive surprises, in our view, have come from Cleanaway Waste Management, Fortescue Metals Group, Goodman Group, Insurance Australia Group, Magellan Financial Group and Ramsay Health Care. 

Negative surprises have, in our view, come from AMP, Bendigo and Adelaide Bank, Crown Resorts, ResMed, Unibail-Rodamco-Westfield and Woolworths.”

ACCC Ups The Ante

The ACCC has established a Financial Services Competition Branch, which it says will provide support for the Commonwealth Director of Public Prosecutions’ prosecution of ANZ, Citigroup, Deutsche Bank and six senior officers, via InvestorDaily.

The unit, enabled by an allocation from the government’s mid-year budget, falls under the ACCC’s new Compliance and Enforcement Policy and includes a permanent competition investigation team.

The competition regulator expects its team to complete a number of investigations that could result in court proceedings.

The announcement made by ACCC chair Rod Sims during his address to the Committee for Economic Development Australia comes on the back of AMP executives facing potential criminal charges, in a case against ASIC over charging fees for no service.

“In commenting on regulators, the final report of the financial services royal commission focused on issues that were of primary concern to ASIC and APRA,” Mr Sims said.

“However, an underlying theme of the royal commission final report was that competition is not vigorous among the major banks or in some parts of the financial sector.”

The watchdog is also writing rules for the Consumer Data Right system, known as ‘open banking’, which will determine how banks must operate under the scheme.

The ACCC’s work will also focus on foreign exchange fees remaining high, Mr Sims added.

The ACCC said the finance competition investigation team will complement a market studies unit that focuses on the financial sector, which has been in place for a year.

ASIC Responds To RC

ASIC said the royal commission’s recommendations reinforce and will inform the implementation of steps ASIC has been taking as part of a strategic program of change that commenced in 2018 to strengthen its governance and culture and to realign its enforcement and regulatory priorities; via InvestorDaily. 

“There are 12 recommendations that are directed at ASIC, or where the Government’s response requires action now by ASIC, without the need for legislative change. ASIC is committed to fully implementing each of these,” ASIC said in a statement. 

“Many of the recommendations made by the Royal Commission involve reforms ASIC advocated for in its earlier submissions to the Royal Commission and, in some cases, in earlier reviews and inquiries.” 

These include: 

• an expanded role for ASIC to become the primary conduct regulator in superannuation; 

• the extension of Banking Executive Accountability Regime (BEAR)- like accountability obligations to firms regulated by ASIC, with their focus being on conduct; 

• the end of grandfathering of Future of Financial Advice (FOFA) commissions; 

• the extension of the proposed product intervention powers and design and distribution obligations to a broader range of financial products and services; 

• the extension of ASIC’s role to cover insurance claims handling and the application of unfair contract terms laws to insurance; 

• reforms to breach reporting; and 

• ASIC being provided with a directions power

Recommendation 1.8 – Amending the Banking Code

ASIC confirmed it will commence work immediately with the banking industry on appropriate amendments to the banking code in relation to each of these recommendations.

Recommendation 4.9 — Enforceable code provisions

ASIC will work with industry in anticipation of the parliament legislating reforms in relation to codes and ASIC’s powers to provide for ‘enforceable code provisions’. 

“This work will include a focus on which code provisions need to be made ‘enforceable code provisions’ on the basis they govern the terms of the contract made or to be made between the financial services provider and the consumer,” the regulator said. 

“ASIC will also continue to work within the existing law to improve the quality of codes and code compliance.”

Recommendation 2.4 — Grandfathered commissions

The royal commission recommended that grandfathering provisions for conflicted remuneration should be repealed as soon as is reasonably practicable.

The government has agreed to end grandfathering of conflicted remuneration effective from 1 January 2021.

Consistent with the government’s response to this recommendation, ASIC said it will monitor and report on the extent to which product issuers are acting to end the grandfathering of conflicted remuneration for the period 1 July 2019 to 1 January 2021. 

“This will include consideration of the passing through of benefits to clients, whether through direct rebates or otherwise,” ASIC said. 

Recommendation 2.5 — Life risk insurance commissions

The royal commission recommended that when ASIC conducts its review of conflicted remuneration relating to life risk insurance products and the operation of the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, it should consider further reducing the cap on commissions in respect of life risk insurance products. 

The final report recommended that unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.

ASIC today confirmed it will implement this recommendation. 

“ASIC will consider this recommendation and factors identified by the Royal Commission in undertaking its post implementation review of the impact of the ASIC Corporations Life Insurance Commissions Instrument 2017/510, which set commission caps and clawback amounts, and which commenced on 1 January 2018,” the regulator said. 

As noted by the royal commission, and consistent with the government’s timetable, ASIC’s review will take place in 2021.

Recommendation 6.2 — ASIC’s approach to enforcement

The regulator said actions are already underway to adopt an approach of enforcement that considers whether a court should determine the consequences of a contravention. 

In particular, ASIC has adopted a ‘Why not litigate?’ enforcement stance and initiated an internal enforcement review (IER). 

“ASIC’s Commission has determined to create a separate Office of Enforcement within ASIC and this will be implemented in 2019,” the regulator said. 

“ASIC will take the IER report and the Royal Commission’s comments on it into account, as it makes its final changes to its enforcement policies, procedures and decision-making structures to deliver on its ‘Why not litigate? enforcement stance.”

Recommendation 6.10 — Co-operation memorandum

Together with APRA, ASIC has agreed to implement this recommendation, including in relation to any statutory obligation to cooperate, share information and notify APRA of breaches or suspected breaches, that the Government puts in place as part of its response to Recommendation 6.9.

Recommendation 6.12 — Application of the BEAR to regulators

The royal commission recommended that both APRA and ASIC internally formulate and apply a management accountability regime similar to those established by BEAR. 

ASIC agrees to implement this recommendation. In anticipation of the Government’s establishment of the external oversight body, ASIC will commence work on developing accountability maps consistent with the BEAR. 

ASIC will consider the approach of the Financial Conduct Authority in implementing this recommendation. ASIC will develop and publish accountability statements before the end of 2019.

Could Hayne destroy AMP’s wealth model?

In a research note published on Thursday, Morningstar analyst Chanaka Gunasekera said the most immediate near-term risk for AMP will be the royal commission’s final report, which the government will release after the market closes on Monday, 4 February; via InvestorDaily. 

“We expect the report to be highly critical of AMP’s governance and conduct,” the analyst said. 

“However, the key risk remains the potential for the royal commission to recommend the dismantling of the company’s vertically integrated wealth management business mode.

“While we think the most likely outcome is that a wholesale separation of its advice, platform, product manufacturing and other businesses will not be recommended, we nevertheless expect the recommendations will lead to a reduction in the competitive advantage of operating this vertically integrated model.”

In his interim report to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Commissioner Hayne questioned vertical integration as it relates to financial advice.

“The one-stop shop has an incentive to promote the owner’s products above others, even where they may not be ideal for the consumer,” Mr Hayne said.

Morningstar also flagged the uncertainty around the strategy of AMP’s new chief executive Francesco De Ferrari, who has just taken up the reins and has been tasked with being a change agent for the group. 

While the new CEO’s strategy will largely depend on Hayne’s final report, there are other risks at play. 

“The political risks are heightened by the fact that a pseudo federal election campaign has commended, with the poll expected by the middle of May 2019,” Mr Gunasekera said. 

Morningstar will review the outlook for Aussie wealth managers following the publication of the royal commission final report. 

“From the perspective of banks, vertical integration always promised the benefit of cross-selling opportunities (the opportunities for cross-selling financial products to existing and new customers).

Evidence about platform fees and the provision of financial advice at the royal commission posed significant questions about the aspects of ‘one-stop shop’ models in advice industry.

In particular, it invited attention to how the vertical integration of the industry may harm clients by protecting platform entities associated with advice licensees from competitive pressures.

The commissioner claimed that clients end up paying more for platform services than other providers would charge for the same service.

In their response to the interim report, Australia’s largest financial institutions acknowledged that conflicts of interest exist but stressed that they can be managed effectively.

AMP’s submission argued that “there are many advantages of vertically integrated structures and that no recommendation should be made by the commission which would limit an entity’s commercial flexibility to adopt a vertically integrated model, as and when it considers it appropriate to do so.”

In an earlier submission to the royal commission, AMP outlined the following benefits to consumers of a vertically integrated model: 

– economies of scale which benefit consumers;

– potentially lowering the cost of advice;

– convenience of a relationship with a single financial institution;

– perceived safety in dealing with a large institution;

– having access to different forms of advice (e.g. phone, on-line, face to face);

– having trust in the institution; and

– that large institutions stand behind the advice that authorised representatives provide to customers and have the capacity to do so

ASIC calls audit quality into question

ASIC has found auditors may not be guaranteeing financial statements are free of misinformation, with a review by the watchdog showing a lack of justification for greenlighting reports across a number of audit areas; via InvestorDaily.  

The ‘Audit Inspection Report for 2017–18’ showed auditors at the six largest auditing firms did not obtain reasonable assurance that financial reports were free from material misstatement across 20 per cent of the 347 key audit areas.

The report covered a review of 20 firms, including the six largest with eight other national and network firms and six smaller companies, over January 2017 to 30 June 2018.

In comparison, auditors at the prominent players lacked reasonable assurance in 23 per cent of the audit areas in the previous 18-month period ending 31 December 2016.

Looking at 98 audit files from firms of all sizes, ASIC found auditors failed to guarantee freedom from misstatement in 24 per cent of the audit areas, a slight decrease from 25 per cent in the prior 18-month period.  

Although the findings do not necessarily mean the financial reports audited were materially misstated, ASIC noted audit quality supports financial reporting quality and is in the interests of directors and audit committees to support the examination process.

“We recognise the efforts by firms to improve audit quality and the consistency of audit execution, which is reflected in some improvements in findings collectively for the largest six firms,” John Price, commissioner, ASIC said.

“However, the overall level of findings still suggests that further work and, in some cases, new or revised strategies, are needed to improve quality.”

ASIC said its inspections focus on higher risk audit areas, selecting more of the complex, demanding and challenging audits and some more significant or higher risk areas of the reports.

The regulator believes sustainable improvements in audit quality require a focus on culture and talent by firms, with all staff needing to brace improvement and being held accountable and firm leadership giving strong and consistent messages that it is not negotiable.

AMP’s Shane Oliver Tips 25% Home Price Falls

AMP Capital chief economist Shane Oliver believes house price falls could be greater than he anticipated following weak auction clearance figures, via InvestorDaily.

CoreLogic data shows that capital city dwelling prices are down 7 per cent from their September 2017 high.

Sydney prices are down 11 per cent from their July 2017 high, while Melbourne is down 7 per cent from its November peak. 

For Sydney and Melbourne, AMP’s base case has been that prices would have a top to bottom fall of around 20 per cent out to 2020. However, looking at the data, AMP Capital’s top forecaster has reconsidered his outlook. 

“The further plunge in auction clearance rates and acceleration in price falls late last year suggest a deeper fall – possibly of around 25 per cent (although it’s impossible to be precise),” Mr Oliver said. 

This suggests around another 15 per cent fall in Sydney and more in Melbourne, he said, adding that a 25 per cent top to bottom drop would take prices back to where they were in late 2014/early 2015.

While a 25 per cent drop in property prices may seem like a ‘crash’ to some, it comes after a significant period of growth; over the five years to 2017, Sydney prices rise soared 72 per cent and Melbourne prices increased 56 per cent. 

“A 25 per cent plunge in Sydney and Melbourne may seem like a crash but given the extent of the prior gains, it’s arguably not. But a 25 per cent national average fall would probably be interpreted as a crash,” he said. 

“Our assessment is that this is unlikely unless we see much higher interest rates or unemployment (neither of which are expected) driving a sharp rise in defaults and forced property sales or a collapse in immigration (which would collapse demand).

“Strong population growth is still driving strong underlying demand for housing. While mortgage stress is a risk, it tends to be overstated, and is unlikely to be a generalised issue unless interest rates or unemployment shoot higher. And, while Sydney and Melbourne are at risk, other cities have not seen the same boom and so are unlikely to crash.”

The latest Domain Q4 House Price Report, released on Wednesday (23 January), revealed that Sydney house prices fell 3.2 per cent over the quarter and 9.9 per cent over the year to $1,062,619. Unit prices fell 3.3 per cent over the quarter and 5.8 per cent over the year to $702,012. 

“The depth of Sydney’s current house price downturn is the sharpest in more than two decades, although the duration is yet to surpass the 2004-06 slump,” Domain Senior Research Analyst Dr Nicola Powell said. 

“House prices have fallen 11.4 per cent from the mid-2017 peak, pushing them back to mid-2016 levels. For the second time since Domain records began in 1993 house prices have fallen for four consecutive quarters, the only other period this occurred was in 2008. 

“Despite the consistent quarterly moderations, the depth of the falls have not gained significant momentum. The pullback in price was anticipated given the stellar run of growth that lasted almost six years. Home owners reaped an unprecedented gain of 89 per cent over this period.”

New research released this week from NAB revealed how consumers are weighing up the new opportunities or threats that the current housing downturn presents. It found that half of Aussies think it is not a good time to sell their home or investment property. 

This view was broadly consistent across states, although a much higher number in Western Australia said it wasn’t a good time to sell their home.

“We suspect this is influenced by the fact that some home owners in WA may also be sitting on capital losses,” NAB chief economist Alan Oster said.

Over the next 12 months Australians are still most positive about renovating their home and buying a property to live in. But it’s also clear consumers are far more uncertain about the future – around 4 in 10 said they simply didn’t know if it would be a good time to buy, sell, renovate or take out a mortgage.

On average, consumers expect price falls of -2.1 per cent over the next 12 months (against -2.4 per cent forecast by property professionals in NAB’s latest Residential Property Survey). 

NSW (-3.1 per cent) and Victoria (-2.9 per cent) are expected to lead the way down, but consumers again are a little less pessimistic than property professionals.

Pressure mounts on RBA to cut rates

Another blowout in bank funding costs is adding to the pressure for an RBA rate cut, according to a leading forecaster, via InvestorDaily.

AMP Capital chief economist Shane Oliver is confident that the Reserve Bank will be forced to cut the cash rate by 50 basis points to 1 per cent this year. 

He explained that Australian economic data has been soft in recent weeks with weak housing credit, sharp falls in home prices in December, another plunge in residential building approvals pointing to falling dwelling investment, continuing weakness in car sales, a loss of momentum in job ads and vacancies and falls in business conditions for December.

“Retail sales growth was good in November but is likely to slow as home prices continue to fall,” Mr Oliver said. 

“Income tax cuts will help support consumer spending, but won’t be enough so we remain of the view that the RBA will cut the cash rate to 1 per cent this year.”

Meanwhile, another spike in funding costs has seen a number of lenders hike their mortgage rates in the first few weeks of 2019. 

Bank of Queensland lifted rates by 18 basis points, while home loan providers Virgin Money and HomesStart Finance have also announced interest rate rises.

“The gap between the 3-month bank bill rate and the expected RBA cash rate has blown out again to around 0.57 per cent compared to a norm of around 0.23 per cent,” Mr Oliver said. 

“As a result, some banks have started raising their variable mortgage rates again. This is bad news for households seeing falling house prices. The best way to offset this is for the RBA to cut the cash rate as it drives around 65 per cent of bank funding.”

Digital Finance Analytics principal Martin North believes even small rate rises could see more households pushed into mortgage stress and increase the risk of default among those already under pressure to meet their monthly repayments. 

“The other point is that it will actually tip more borrowers into severe stress, that’s when you’ve got a serious monthly deficit. That’s the leading indicator for default 18 months down the track,” he said.

Ignore Neobank Hype Says Mutual Bank

An alternative to the big banks already exists and it isn’t in neobanks according to the chief executive of a mutual bank, via InvestorDaily.

Heritage Bank chief executive Peter Lock said that neobanks did not offer anything new to the banking system. 

“Forget the hype about neobanks. There’s nothing that digital banks and neobanks offer that customer-owned institutions such as Heritage Bank don’t already offer to people frustrated by the listed banks,” he said. 

Mr Lock said that mutuals were tried and tested institutions who had market-leading technology and weren’t owned by investors looking to turn a profit. 

“Unlike many neobanks, mutuals aren’t owned by big investors looking to make a profit. If you’re turning to them to escape the profit-maximisation excesses of the big banks, then you should think again. 

Mr Lock said that mutuals offered a different mindset to listed banks as they did not have profit maximisation incentives. 

“Regardless of their rhetoric, the listed banks face an inherent conflict between the interests of their customers and the interests of their shareholders. At the end of the day, the listed model exists to serve their shareholders above all else, not customers,” he said.

However, APRA’s general manager of licensing Melisande Waterford defended new entrants to the market during a panel last year where she said neobanks offered something new. 

“Neobanks have a completely different mindset and a different approach to providing a service,” she said.

This mindset has proven to be popular with consumers as well according to recent data from Nielsen. 

Nielsen’s latest data found a five-percentage point increase over twelve months of Australians looking to switch to a digital bank. 

Not only are Australian’s looking to switch to digital banks but 75 per cent of digital bank customers would recommend their bank to others, compared to just 45 per cent of the big four.

GlobalData’s head of banking content for Asia-Pacific Andrew Haslip said that conditions in Australia were ripe for neobanks given the lack of trust in the industry. 

“‘The clutch of neobanks waiting in the wings in Australia will have no better time to launch recruitment drives, while a range of robo-advisors, none of which have yet broken out into the mainstream, will have the best conditions yet to draw in new money,” he said.

Recently neobanks like Volt and Xinja have been granted restricted ADI licenses, making them one step away from a full banking licence. 

Millions looking to leave major banks

New research has found that over two million Australians are currently seeking new banking providers, with many currently customers at one of the big four, via InvestorDaily. 

The research produced by Nielsen found that 2.1 million Australians are seeking new providers and 67 per cent of them are currently customers at one of the big four. 

The research found that Australians were increasingly looking away from the established banks and instead looking at digital banks, with a five-percentage point increase in Australians looking to change to digital banks in the past twelve months. 

Nielsen’s head of financial services and insurance Jo Brockhurst believed that the open banking legislation would see this number increase as consumers were given more choice. 

“Open banking will allow consumers to own their data and have personal financial information easily accessible and transferable to other financial institutions. These changes will allow for more competition, potentially leading to a huge change in the way customers interact with and are marketed to by the financial industry,” she said. 

Ms Brockhurst said that the trend towards digital banks would also see neobanks like Xinja and Volt who already have restricted ADI licences increase their market share. 

“The trend towards digital banks is paving the way for neobanks to gain market share. While early adopters of neobanks have traditionally been millennials (age 18 to 35), their customer base has rapidly expanded from 18 to 80-year-olds for some brands in Australia,” she said. 

Nielsen’s research found that 90 per cent of customers with digital banks were very or quite satisfied with the banks and 75 per cent of them would recommend their bank. 

Meanwhile only 45 per cent of customers with one of the big four banks would recommend theirs. 

Ms Brockhurst said this difference was down to ‘the promise gap’ with consumers expecting the banks to deliver high quality experiences. 

“While the big four banks are seeking ways to improve future engagements, neobanks are at the forefront and growing their customer base daily. 

“Time will tell if traditional banks are able to transition or if neobanks will eat away their market share,” she said. 

Xinja’s chief executive Eric Wilson said that neobanks put financial ownership in the hands of the consumer and that was what people were after. 

“People are expecting a lot more than just ‘digital’ banks – digital is a given these days – what they are looking for is something that delivers an easy, frictionless and engaging experience, similar to those they have found in other next generation companies from other industries. They will also expect new business models built around customers’ interests – a ‘win-win’.”

The open banking legislation that is expected to pave the way for neobanks comes into effect on 1 July this year. 

Westpac shareholders reject executive pay

Westpac incurred a first strike against its remuneration report at its annual general meeting this week, where chairman Lindsay Maxsted said the ruling would send a strong message to the board; via InvestorDaily.

CEO Brian Hartzer along with Mr Maxsted also addressed the royal commission, the bank’s financial performance for the past year and the executives’ remuneration in the company’s AGM.

Peter Hawkins, non-executive director, retired following the AGM, after 10 years of being on the board. Westpac will be electing two new non-executive directors in the first half of calendar 2019.

While the poll on the remuneration report among shareholders had not been completed at the time of the chairman’s address, more than half of the votes already received were against the resolved salaries.

“Feedback from shareholders has varied, but the key point from those voting against the remuneration report has been that although the board took events over the year into account, many have questioned whether we went far enough, particularly in reducing short-term variable reward paid to the CEO and other executives,” Mr Maxsted said.

The short-term variable reward for the Westpac CEO and group executives in Australia were on average, 25 per cent lower than last year.

No long-term variable reward was vested in 2018. Around one-third of the board’s potential remuneration forfeited, which Mr Maxsted said was equivalent to about $18 million.

The CEO saw his short-term variable reward outcome cut by 30 per cent, or $900,000 over the past year.

The largest individual year on year reduction was 50 per cent, although Westpac did not disclose who it was, or for what reason.

“This is entirely consistent with the relatively weak performance of shares in the banking sector, including Westpac, over the last few years, including the 2018 financial year,” Mr Maxsted said.

“Putting this another way, for the CEO, his total variable reward outcome was 36 per cent of his total target variable reward.”

The chairman said the key failings from Westpac in light of the royal commission were not fully appreciating the underlying risks in the financial planning business, employee remuneration contributing to poor behaviour and inadequacy in dealing with complaints.

“Better training and supervision, changes to the way financial planners were remunerated, and better documentation of advice was required,” Mr Maxsted said.

“As we have seen across the industry, where we get it wrong, the remediation is costly,” Mr Hartzer said.

“What has been clear is that we have not always embedded strong enough controls and record-keeping around ensuring that customers received the advice they had signed up for.”

Mr Maxsted also cited Westpac’s slowness in focusing on non-financial risks.

“In 2018, our financial performance was mixed; we have further built on the balance sheet and financial strengths that are a hallmark for Westpac but our annual profit was relatively flat over the year,” Mr Maxsted said.

Cash earnings for the year ended 30 September was $8 billion, $3 million up on the year before. Reported profit reached $8.1 million, increasing by 1 per cent from the prior corresponding period.

Business Bank grew profits by 8 per cent and New Zealand was up 5 per cent. Excluding the cost of remediation provisions, BT’s profit was down 1 per cent.

Institutional Banking saw its profit go down by 6 per cent, which Mr Hartzer said largely represents a slowdown in financial markets activity.

The bank also saw a slowdown in housing lending, with credit growing 5.2 per cent in the past 12 months, when it was 6.6 per cent in 2017.

“The group began the year solidly with good growth and well-managed margins in the first half. Conditions in the second-half, however, were more difficult with higher funding costs, lower mortgage spreads, and a reduced markets and treasury contribution,” Mr Maxsted said.

“In addition, we needed to lift provisions associated with customer refunds and regulatory/litigation costs as we address some of the legacy issues alluded to earlier.”

The board determined a final dividend of 94 cents per share, unchanged over the prior half and consistent with the final dividend for 2017. The full year dividend comes to 188 cents per share, unchanged from the year before.

Mr Maxsted also noted Westpac removing grandfathered commission payments in the past year, saying it was the first in the market to do so.

“With revenue growth continuing to be a challenge, we have re-doubled our efforts to reduce costs by simplifying our products, automating process and modernising our technology platform,” Mr Hartzer said.

“Over recent years, we have delivered productivity savings of around $250-300 million per year. In 2019, we aim to lift that to more than $400 million – almost one third higher than 2018.”

Mr Maxsted also mentioned the bank’s development of its new Customer Service Hub, the group’s multibrand operating system. The system is now in pilot and will go live with new Westpac mortgages in 2019.

In terms of outlook, Mr Hartzer said that while it seemed positive as a whole for the Australian economy, for banks, it looked more challenging.

“Although credit quality is likely to remain a positive, low interest rates, slowing credit growth, and a fall in consumer and business confidence – especially about house prices – puts pressure on bank earnings growth,” he said.