The most recent Australian Bureau of Statistics household spending data shows discretionary spending in September fell 0.2 per cent month on month, while non-discretionary spending rose 0.2 per cent. An ANZ-Roy Morgan survey last week also showed consumer confidence stayed above the mark of 85 for a second consecutive week, the first time since January 2023.

Westpac expects the Reserve Bank of Australia to cut the cash rate early next year from its current level of 4.35 per cent, and is forecasting 100 basis points throughout 2025. It is also forecasting unemployment to rise from 4.3 per cent to 4.6 per cent, and the economy to grow by 1.5 per cent to 2.5 per cent.

Westpac’s net interest margin, a key measure of profitability comparing banks’ funding costs with what they charge for loans, improved in the second half on the back of more profitable lending, to 1.97 per cent.

The bank’s closely watched operating expenses, a key focus for analysts, jumped 6 per cent to $10.9 billion on the back of rising wages and technology costs.

Westpac delivered a higher final dividend of 76¢ a share, up from 72¢ a year earlier. It upped its buyback by $1 billion but it did not issue a special dividend as analysts had forecast.

Opal Capital Management chief investment officer Omkar Joshi said Westpac’s results were slightly better than expected, but the high interest rate environment continued weighing down borrowers.

“We’ve had some time to get used to a higher interest rate environment but I would say there’s an element of people waiting for rate cuts,” Joshi said. “Trading updates from retailers, and even anecdotal feedback, [suggests] that it does feel like things are slowing down from a consumer perspective.”

UBS head of Australian bank research John Storey said there was some disappointment Westpac did not announce a special dividend, but that could be offset by the expanded buyback scheme.

“The underlying [net interest margin] trends we think look encouraging, although a period of higher than expected cost growth might dampen some of this benefit,” Storey said.

Westpac shares rose 0.9 per cent to $32.40.