Westpac boss Peter King says the economy is on track for a soft landing, even as customer stress has ticked up, and the bank posted a 16 per cent drop in profits.

On Monday, Westpac reported a net profit of $3.3 billion in the six months to March, down 16 per cent from the same period last year. Excluding notable items including provisions for remediation, litigation, fines and penalties, and restructuring costs, the bank’s net profit was down 8 per cent over the year.

Westpac announced a 75 cent interim dividend, up from 70 cents last year, a 15 cent special dividend and a $1 billion increase in buybacks.

“We’ve managed growth and margins in a disciplined way amid a slowing economy and competitive banking sector,” King said. “The impact of competition on mortgage margins moderated this half.”

Westpac’s net interest margin, a core measure of profitability comparing a bank’s funding costs with what it charges for loans, fell 7 basis points to 1.89 per cent, largely reflecting mortgage competition which King said had started to cool in the six months to March.

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Despite continued pressure from mortgage and deposit competition for the broader banking sector, Westpac grew its mortgages and deposits by 5 per cent and business lending by 9 per cent over the year. Its operating expenses increased 8 per cent to $5.5 billion which the bank said was due to higher software amortisation expenses and inflationary pressure on wages and third-party vendor costs.

King said Australians were doing it tough as a result of higher interest rates and cost of living.

“More customers are calling us for assistance, and we’re helping those who need it,” he said. “While we’ve seen an uptick in stress in our loan books, this is to be expected given the large increase in interest rates, high inflation and taxation.”