How UNITE ‘circuit breaker’ is driving up costs – for now
Westpac’s latest financial results show the country’s second-largest bank grappling with the twin challenges of rising costs and tighter lending margins. The decline in full-year profits is modest, but it points to deeper structural pressures within the banking sector and a costly technology overhaul that is yet to deliver returns.
Westpac reported a 3% fall in statutory net profit to $6.99 billion for the year to September 2024, down from $7.19 billion a year earlier. Cash earnings were also weaker, reflecting higher operating costs and flat income growth across most divisions.
The main culprit lies in the bank’s technology transformation program, known as UNITE, a multi-billion-dollar project designed to simplify its technology systems and reduce long-term costs. While management has framed UNITE as a necessary modernisation effort, the timing is weighing heavily on near-term profitability. Much of the spending is being expensed rather than capitalised, meaning it hits the profit and loss statement directly. Westpac estimates that roughly three-quarters of UNITE’s costs will be expensed in the early years of the program, which runs through to 2028.
Operating expenses rose by about 6% over the year, driven by inflationary pressures and the ramp-up of technology spending. The long-term ambition is to cut the number of core systems by two thirds and streamline operations, but for now, the benefits remain on the horizon.
At the same time, income growth is proving hard to sustain. Net operating income slipped slightly to $21.6 billion, as rising deposit costs and intense mortgage competition continued to erode the bank’s net interest margin. Westpac’s core margin fell by around four basis points over the year, highlighting the strain of competing in a home loan market where borrowers are increasingly rate-sensitive and refinancing activity remains high.
The bank’s home lending portfolio grew only modestly, and it completed the sale of its RAMS mortgage portfolio to focus on higher-margin areas. That decision reflects a broader shift among major lenders toward profitability over market share, particularly in an environment where funding costs are rising and consumer demand is softening.
Non-interest income, which includes fees, wealth management, and trading operations, also declined by about 15%. The drop underlines the ongoing challenge for banks to rebuild secondary revenue streams that can offset tighter margins in traditional lending.
Former chief executive Peter King positioned UNITE as a 'circuit breaker' that will simplify Westpac’s technology base and reduce duplication. Now, under chief executive Anthony Miller, the project is expected to deliver long-term efficiency gains, but the investment phase will continue to weigh on profits over the next two years. Analysts see the program as essential to modernising the bank’s infrastructure, though some have questioned the decision to accelerate spending at a time of subdued revenue growth.
For mortgage brokers, Westpac’s results hint at a more cautious approach from the majors in the months ahead. Cost control and risk management are taking precedence over loan growth. That could mean fewer deep discount offers, greater scrutiny of borrower profiles, and a slower pace of lending in competitive segments such as refinancing and investment property.
The decline in profit does not suggest a bank in trouble, but rather one in transition. Westpac is attempting to rebalance its business for a lower-margin environment while investing heavily in technology that will, eventually, make it more efficient. The next two years will test how well it can maintain earnings momentum while rebuilding its cost base.
For brokers and borrowers alike, the shift signals a new phase in the mortgage market – one defined less by growth and more by efficiency, stability, and selective lending.
What is UNITE?
UNITE is Westpac’s central transformation initiative aimed at bringing together its many legacy systems under a single, simplified technology framework. The program is both business-led and technology-driven – its goal is to make Westpac easier to operate, faster to adapt, and more consistent in the way it interacts with customers.
In practice, this means cutting down hundreds of ageing platforms and consolidating customer data, onboarding tools and staff systems into a smaller, more efficient set of core technologies. The idea is to 'unite' the bank’s back-end technology so that digital change becomes quicker and cheaper.
The program runs through to around 2028, with investment running into several billion dollars over that period. Westpac expects that roughly three quarters of the costs will be expensed rather than capitalised, which means the impact is being felt immediately in its profit and loss statement.
In the short term, that has pushed up operating expenses and weighed on profits, but management argues the investment will pay off through lower long-term costs and faster digital delivery.
Why it matters
Westpac’s technology structure has long been criticised as overly complex. The bank operates far more core systems than some of its peers, leading to higher running costs and slower change times. By simplifying its architecture, Westpac hopes to bring its cost-to-income ratio closer to that of its rivals and to build a more responsive digital bank.
The UNITE program is also intended to improve customer and broker experience. Fewer systems mean less duplication and a more seamless process – whether that’s onboarding a new home loan customer or updating account details.
Early progress
Westpac has already reduced the number of platforms its staff use, merged various identity-verification and customer-data systems, and created a more unified digital foundation. The early phases are about rationalising infrastructure and building common tools that can serve both retail and business banking.
The program is not without risk. Large technology transformations carry a high chance of delays and cost overruns, and expensing so much of the spend up front puts ongoing pressure on profitability. There is also execution risk: migrating multiple systems while continuing to serve millions of customers is a delicate balance.
What it means for mortgage brokers
For brokers, the effects of UNITE will be gradual but important. In the short term, brokers may notice a tighter operational focus as the bank manages system changes and seeks to control costs. Turnaround times could be affected during transition periods.
Over time, though, the benefits should be tangible. Simplified systems should mean faster approvals, smoother digital interactions, and more reliable service levels. UNITE is intended to make Westpac more agile – and that, in theory, should make life easier for brokers and borrowers alike.
