Westpac shares down despite record profit

Westpac has announced a first half cash profit of $3.77 billion and has lifted its interim dividend. Source: AAP

SHARES in Westpac are flat in early trading after the bank revealed a record first half cash profit of $3.77 billion.

Australia's second-largest and oldest bank opened higher before pulling back - just as ANZ did after its record profit was announced on Thursday.

Westpac shares were seven cents down at $34.80 at 1025 AEST on Monday.

ANZ shares were down again on Monday while rivals Commonwealth and NAB had made gains.

Westpac's shares had been predicted to fall given the record run in bank shares of late with many investors regarding them as being full-valued.

Westpac's cash profit - the bank's preferred performance measure - was up eight per cent from the prior corresponding period, beating analysts' expectations.

Net profit for the six months to March 31 was $3.62 billion, up from $3.29 billion a year ago.

Westpac lifted its fully-franked interim dividend to 90 cents, from the previous 86 cents.

However, unlike the two previous half years, no 10 cent special dividend will be paid on top of the distribution this time as some had expected.

The bank followed ANZ's lead last week in posting a decline in margins due to high competition for mortgage customers.

Westpac had been expected to increase net interest margins - the difference between its funding and lending costs - but it declined eight basis points to 2.11 per cent.

The bank still increased housing loans by five per cent. It already has Australia's second largest share of housing loans, behind Commonwealth Bank.

Westpac chief executive Gail Kelly said that the world economy had improved in recent times with Europe pulling out of recession and the US slowly moving towards trend growth.

Mrs Kelly said that she was positive about the second half for the bank.

The bank's tier capital adequacy ratio of 8.82 per cent - equity capital versus total risk-weighted assets - is the best of the big four banks.

"Our focus on tilting to growth is delivering, and this is expected to continue into the second half of the year," she said.

IG market strategist Evan Lucas said the profit result was stellar but, digging deeper, the result looked benign with institutional banking's earnings going backwards - an area in which the other major banks have increased.

"At the moment, the banks are really easy to poke holes in because they are so fully (share price) valued," he told AAP. He predicted a repeat of ANZ, with a possible fall in its share price on Monday despite a record profit.

"(The profit) comes down to their consolidation rather than growth story ... they are eking out profits that way."

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