Morningstar picked the wbc rate rise pretty well. Lower Net...

Morningstar picked the wbc rate rise pretty well.
Lower Net Interest Margins Surprise in Westpac's 3Q18 Update. AUD 35 FVE Unchanged.
Lower net interest margins, or NIMs, surprised in wide-moat Westpac Banking Corporation's third-quarter fiscal 2018 update covering capital, funding, and asset quality. Despite weaker margins, the update was in line with our expectations, underpinning our unchanged AUD 35 fair value estimate. Westpac Bank is our preferred major Australian bank, trading 20% below valuation and in a good position to deliver solid profit and dividend growth on the back of strong market positions and a resilient economy. We make no changes to our fiscal 2018 forecast cash profit of AUD 8.4 billion and fully franked dividend of AUD 1.88 cents per share, or cps. Prior to the update, consensus estimates were for a cash profit of AUD 8.5 billion and AUD 1.89 cps dividend. The bank continues to leverage strong east coast economic conditions, with 73% of new home loans in the June quarter settled in New South Wales and Victoria. NIMs declined 11 basis points in the quarter to 2.06% from 2.17% for first-half fiscal 2018 due primarily to the sharp increase in short-term wholesale funding. Westpac estimates a five basis point movement in short-term wholesale funding costs, known as bank bill swap rates, or BBSW, impacts NIMs by approximately one basis point. During the third quarter, average BBSW rates were 2.02%, about 24 basis points higher than the first-half fiscal 2018 average of 1.78%. Higher average BBSW rates reduced the bank's margins by five basis points. Despite the surprisingly soft NIM outcome, our full-year fiscal 2018 margin forecast of 2.13% is unchanged as short-term wholesale funding costs have eased a little since end of June, with 90-day BBSW rates falling from a peak of 2.12% at end June 2018 to about 1.96% currently. We are not sure if short-term funding costs will continue to fall, but if they remain elevated for long, we expect the bank and major bank peers, to increase variable home loan rates to offset the higher funding costs.