A Westpac logo is seen on a building in Sydney, Australia, May 5, 2025. REUTERS/Hollie Adams

By Scott Murdoch

(Reuters) - Australia's Westpac Banking Corp reported a slight fall in annual profit on Monday but beat analyst forecasts, sending its shares up nearly 3%, as the bank works to boost its market share in the intensely competitive home loan market.

The country's third-largest lender by market capitalisation said it expected credit growth to moderate through 2025 before stabilising in 2026 as higher interest rates and slowing consumption cool the economy and housing demand.

It added that strong employment and accumulated savings were helping to limit arrears and defaults.

Australian banks have scaled back non-core operations in recent years to sharpen their focus on home lending, increasing their dependence on the sector to drive income and profit, while intensifying competition in the mortgage sector.

Westpac's home-loan growth rate in the past six months has trailed its main rivals, but Chief Executive Anthony Miller said he was satisfied with the division's performance as it moves to hire more bankers and streamline its loan approval process.

The bank is aiming to reduce its dependence on mortgage brokers to lift margins on new home loans.

"We want to be very thoughtful about where we grow and how we grow, so the fact that I'm not quite at system in terms of growth is deliberate," Miller told Reuters in a phone interview.

"What we're really working on is how we get our service proposition so it's absolutely best in market," he said.

Westpac posted a net profit after tax of A$6.99 billion ($4.54 billion) for the year ended September 30, down from A$7.11 billion a year earlier but ahead of Visible Alpha's A$6.83 billion consensus estimate.

Westpac's net interest margin, the spread between interest earned from loans and paid to depositors, declined 1 basis point to 1.94% amid persistent competition in lending and deposits.

The bank's shares closed 2.8% higher while the broader S&P/ASX200 was mostly flat on Monday.

STRONG CAPITAL POSITION

The bank's home lending book now stands at A$497 billion, up 5% from last year, but regulatory data published on Friday showed mortgage lending at Commonwealth Bank, National Australia Bank and ANZ Group is growing at a faster pace than Westpac.

Westpac's consumer division, which includes its mortgage operations, accounted for roughly 33% of the bank's net profit in the full year, making it the bank's biggest earnings driver.

Westpac has a 21% mortgage market share, according to industry data, second behind Commonwealth Bank which has about 25%.

Credit quality stayed strong. Fewer borrowers fell behind on their repayments, with home loans overdue by more than 90 days dropping to 0.83% from 1.05% a year earlier.

The share of loans showing signs of stress also eased slightly to 1.36% of total lending.

The result was mostly in line with expectations, helped by the lower bad debt expense and improved credit quality, said Joseph Koh, a portfolio manager at Blackwattle Investment Partners, a Westpac shareholder.

He highlighted the bank's strong capital position, which he said was partly due to the sale of its A$21.4 billion RAMS mortgage portfolio.

"WBC looks like they could continue returning more capital," Koh said.

Operating expenses jumped 9% to A$11.9 billion, inflated by A$273 million in one-off restructuring costs, heavier technology and transformation spending, and wage growth as the bank hired more frontline staff.

Westpac declared a final dividend of 77 Australian cents per share. The full-year dividend was A$1.53, representing a 76% payout ratio and up slightly from last year.

($1 = 1.5389 Australian dollars)

(Reporting by Scott Murdoch in Sydney; Additional reporting by Roushni Nair and Shivangi Lahiri in Bengaluru; Editing by Chris Reese, Christian Schmollinger and Sonali Paul)