Westpac's Australian profit at top end

Westpac Banking Corp's first-half net profit rose 8.2 per cent on stronger corporate lending, but Australia's fourth-largest bank failed to follow rivals' earnings upgrades as mortgage growth slowed sharply.

Westpac maintained its full-year earnings outlook for growth at the upper end of forecasts offered by the country's major banks.

Rivals ANZ Banking Group and St George Bank recently upgraded their outlooks, projecting earnings rises of more than 8 per cent and 11 per cent respectively.

"There are going to be some pockets of ugliness in the housing market," said Westpac chief executive David Morgan, at the same time defending the bank's conservative approach to mortgage lending.

Westpac cautioned that housing and small- and medium-sized business lending had slowed in the last six months as Australia's and New Zealand's economies eased from strong levels of growth and as new competitors used price to win market share.

Shares in Westpac, which has 812 branches and 27,000 staff, rose as much as 1.8 per cent in early trade yesterday to a seven-week high of A$19.37 ($20.57), then fell as much as 1.6 per cent before closing 0.05 per cent lower at A$19.02 in a firmer market.

Top mortgage lender Commonwealth Bank of Australia, which upgraded its earnings outlook in February, was the only bank to close higher, rising 5Ac to A$36.25.

"It is a difficult market to please at the moment," said Leigh Gardner, ABN Amro's head of sales trading.

"The result was a solid set of numbers. They've maintained their guidance, but the market was probably looking for a potential upgrade."

Slower credit growth and declining margins would lead to lower bottom-line profit growth for banks, said Constellation Capital Management's head of investment research, Peter Vann.

Still, "banks potentially are going to be viewed to be a little bit more defensive than some of the stocks that will suffer in a downturn, like residential property developers and some of the consumer discretionary stocks".

Australian banks have benefited from an economy in its 14th year of growth and unemployment at a 28-year low, fuelling demand for credit and keeping bad debts low.

But the housing market has cooled as the central bank raised interest rates to 5.5 per cent.

Westpac's net profit for the six months to March 31 climbed to A$1.325 billion ($1.41 billion) from A$1.225 billion a year ago, near the top end of analysts' forecasts when adjusted for a A$40 million accounting treatment of hybrid securities.

Cash earnings per share (EPS), which is before goodwill amortisation and one-off items, for the half-year rose 12 per cent to 75c, the top end of market expectations.

For the year to September 30, analysts had on average forecast cash EPS to rise 10 per cent to 153c, with the top-end forecasting an 11.5 per cent rise, according to a Reuters poll of seven analysts.

Earnings were driven by a 22 per cent increase to A$34.78 billion in Australian corporate loans, although this slowed to 7 per cent when compared with the 2004 second half because of weaker growth in small- and medium-sized business loans.

Cash earnings at fund manager BT jumped 33 per cent.

The results follow first-half profit rises of 5.7 and 17.5 per cent respectively from No 3 lender ANZ and No 5 lender St George. The biggest lender, National Australia Bank, reports its results next Wednesday.

Analysts have raised concerns about Westpac's sliding market share in the A$600 billion mortgage market. Westpac has tight lending restrictions, particularly on city apartments.

Its housing loans in Australia rose 6 per cent to A$90.7 billion over the year to March 31, although this slowed to just 1 per cent growth when compared with last year's second half.

Chief financial officer Phil Chronican said Westpac would not sacrifice its risk management practices to chase market share, but the bank had made improvements to service levels, hired a sales consultant and re-priced some home loans.

Westpac said it would pay a better-than expected interim dividend of 49Ac per share, up 17 per cent on last year, while future dividends should increase at least 2Ac each half.

- REUTERS