A Westpac logo is seen on a building in Sydney, Australia, May 5, 2025. REUTERS/Hollie Adams

By Scott Murdoch and Roushni Nair

(Reuters) -Annual profit at Australia's Westpac Banking Corp fell slightly to A$7 billion ($4.55 billion), but beat analyst forecasts, it reported on Monday, as the bank faces intense competition from its major rivals for home lending.

The country's third-largest lender by market capitalisation said it expected credit growth to moderate through 2025 before stabilizing in 2026 as higher interest rates and slowing consumption cool the economy and housing demand.

It added that strong employment and accumulated savings were helping to limit arrears and defaults.

The bank posted a net profit after tax of A$6.99 billion for the year ended September 30, down from A$7.11 billion a year earlier but ahead of Visible Alpha's A$6.83 billion consensus estimate.

Westpac's net interest margin, the spread between interest earned from loans and paid to depositors, declined 1 basis point to 1.94% amid persistent competition in lending and deposits.

The bank's shares were down about 1.2% while the broader S&P/ASX200 was off 0.2% in early trading on Monday.

Westpac CEO Anthony Miller said while Australia's economy was showing signs of improvement, the prospect of future interest rate cuts remained slim after a sharp increase in core inflation in the September quarter.

He said Australia's economy was not shielded from external shocks that could emerge around the world.

"The global outlook is not without risk, with ongoing trade and geopolitical tensions a constant threat," Miller told a call with analysts on Monday.

Westpac is facing increased rivalry in Australia's ultra-competitive mortgage market with its growth rate in the past six months below its biggest competitors.

The bank's housing lending book now stands at A$497 billion, up 5% from last year, but regulatory data published on Friday showed mortgage lending at Commonwealth Bank, National Australia Bank and ANZ Group is growing at a faster pace than Westpac.

Still, credit quality stayed strong. Fewer borrowers fell behind on their repayments, with home loans overdue by more than 90 days dropping to 0.83% from 1.05% a year earlier.

The share of loans showing signs of stress also eased slightly to 1.36% of total lending.

Operating expenses jumped 9% to A$11.9 billion, inflated by A$273 million in one-off restructuring costs, heavier technology and transformation spending, and wage growth as the bank hired more frontline staff.

It declared a final dividend of 77 Australian cents per share, up slightly from 76 cents a year earlier. The full-year dividend was A$1.53, representing a 76% payout ratio and up slightly from last year.

Separately, Westpac announced it had entered into an agreement to sell its A$21.4 billion RAMS mortgage portfolio to a consortium including Pepper Money, KKR and PIMCO.

($1 = 1.5389 Australian dollars)

(Reporting by Scott Murdoch in Sydney; Additional reporting Roushni Nair and Shivangi Lahiri in Bengaluru; Editing by Edmund Klamann, Chris Reese and Christian Schmollinger)