The Australian economy will avoid a recession over the coming 12 months, with growth likely to come in at 2pc albeit significantly lower than the high double digit boosts of recent years which pushed the sector's earnings to record levels, according to Westpac.
Westpac today indicated it had shrugged off the worsening effects of the slowing economy over the past six months by turning in a 6pc increase in full year profits, to $3.72 billion - right in line with market expectations.
In a separate statement yesterday, the Reserve Bank's deputy governor Ric Battelino also said the Australian economy was on track to avoid the recession engulfing many other developed countries, although it would slow markedly over the next two years.
In a virtual mirror image of its performance in the first half of its 2008 financial year, Westpac, the country's third largest bank by stock market value revealed that its earnings had continued to grow at a steady rate through to the end of September despite the continuing storm in financial markets.
But in an indication that the effects of the global credit crisis is now seeping well and truly into the real economy, Westpac disclosed that its provisions for increasing bad debts had jumped by 93pc, to $931 million from $482 million 12 months ago.
It also warned that its bad debt provisions would continue to rise as the jobless total goes up in coming months.
The higher impairment charges were first signalled earlier this year when Westpac found itself exposed to the sudden collapse in market values of troubled corporates like Allco Finance Group.
But the increased figure in today's accounts show that Westpac, just like its major Big Four rivals and its smaller merger partner, St George, is having to put aside more money to cover off potential problems in the wider economy following a sharp slowdown in growth in recent months.
However, today's results also underlined Westpac's ability to weather the bleak conditions that have hit the country in the wake of the worst global financial crisis in living memory.
With lending and deposit growth both rising strongly - by 13pc and 16pc respectively - thanks to a flight to quality as borrowers and depositors sought safe cash havens, Westpac saw its revenue jump by a tenth year-on-year to $11.1 billion.
With an increase in costs held to 7pc, the cash profit figure - the industry's preferred measure of earnings - came in at the level forecast by industry analysts.
That level saw cash earnings per share rise almost in line at 5pc to 198.3c a share
The percentage increase for net profits was even higher, up 12pc, at $3.85 billion.
Shareholders will benefit to the tune of an 8pc increase in the second half dividend, to 72c, making a total of $1.42 for the full year.
The higher overall profit result was boosted by the group's retail and business banking divisions which between them posted a combined 10pc increase in operational earnings to just under $2 billion.
Its New Zealand arm also shrugged off the recession gripping the country by posting a 6pc increase to $484 million.
Those better contributions, though, were held back by the two major businesses that have been most affected by the worldwide liquidity crisis and the resulting financial turmoil that has devastated many of Westpac's international counterparts.
The ravages experienced by the stock market since January which has seen equities fall by around 40pc took its toll on the bank's BT funds management operation.
Its profits dropped 12pc to $389 million.
Today's overall result, though, was marked by the fact that there were no major surprises in the figures nor specific pieces of bad news from the corporate sector.
And despite the wider global picture, where more troubled banks have had to turn to shareholders or governments for massive injections of cash, Westpac has dismissed any need for large scale capital raising, saying its balance sheet is in good shape.
Its Tier 1 finances - the best measure of its financial position - currently stand at 7.8pc, up from 7.4pc in March.
However, it has said it will continue to bolster its balance sheet by again underwriting the dividend reinvestment plan for its final dividend.
As for the outlook for 2009, Westpac indicated that the forthcoming period will be a tough year for the banking sector and the wider economy as the financial environment continues to deteriorate.
As well as facing the major challenge of integrating St George bank after the expected completion of the $16 billion merger process in December, Westpac is already seeing lending growth tail off sharply among the key consumer and business sectors.
But the bank has aligned itself with its industry competitors by forecasting that the domestic economy will avoid a recession.
The bank's chief executive, Gail Kelly, said today's result was a reflection of Westpac's financial resilience and had been achieved despite the "unprecedented dislocation" in global banking and financial markets.
Sydney Morning Herald
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