‍👉 Background: Westpac is Australia’s third-largest bank with 12.7 million customers across its brands. We'd be talking Westpac, St. George, BankSA, and RAMS. In December 2024, Westpac’s former CEO, Peter King, stepped down after nearly 5 years in the role.

‍👉 What happened: Now, Westpac’s new CEO delivered his first half profit - where he warned of a 1% dip in profit to $3.3 billion (yep - "just" $3.3 billion). Despite falling short on profit and dividend forecasts, not everything was disappointing for the Big Red as it grew its business loans by 14% and mortgages by 5%.

‍👉 What else: Westpac’s new CEO wants to double down on these areas for even more growth. In fact, he announced plans to hire 450 new bankers to cross-sell more products. But even with those greenshoots of positivity, he warned that there is some serious uncertainty in geopolitics and this could hit Westpac’s future funding costs. Next minute: Westpac’s share price fell 3%.

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‍What's the key learning?

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‍💡Banks borrow money from a range of sources in order to lend to its clients. The costs associated with its borrowing are known as its borrowing costs. For Westpac, about 60–65% of their funding comes from customer deposits such as savings accounts and term deposits.

💡The remainder of their funding costs comes from wholesale markets - they borrow money from investors here in Australia as well as overseas. When the global mood swings with tariff wars and economic uncertainty, investors demand higher interest rates to lend their cash, which drives up Westpac’s funding costs.

💡If it costs more to fund loans, the bank’s margins shrink. Given Australian banks live and die by their Net Interest Margin (NIM), even a small rise in funding costs can seriously hurt their profits… and share price.