By Alice Uribe

SYDNEY--Westpac Banking Corp. scrapped its interim dividend to protect its balance sheet and increased its provision for bad debts, as the coronavirus pandemic creates hardship among business and residential borrowers.

Westpac said its unaudited cash earnings totaled 1.32 billion Australian dollars (US$962 million) in the three months through June, which is the third quarter of its fiscal year, coming in slightly below some analysts' expectations. The bank said the result was 19% higher than the quarterly average of A$497 million in its first half when notable items were excluded.

Westpac also reported a third-quarter unaudited net profit of A$1.12 billion, 87% higher than the quarterly average of A$595 million.

Chief Executive Peter King said the improved result, excluding notables, mostly reflected lower impairment charges. Still, the "the impact of the Covid-19 pandemic is clear as activity fell and margins declined," he said.

"While there have been some signs that the economy is performing better than early expectations, significant uncertainty remains, particularly given the unpredictability of Covid-19 outbreaks and their local impacts," he added.

Westpac said total provisions were up A$574 million in the third quarter. Impairment charges of A$826 million were lower than the quarterly average of A$1.11 billion in the first half. Still, the lender said impairment charges remain elevated at 46 basis points of gross loans annualized.

On dividends, the lender said it would next consider them when finalizing its annual result, after deferring a decision on its mid-year payout at its half-year result in May.

"Given the desire to retain a strong balance sheet and the ongoing uncertainty in the operating environment, the board has now decided it is prudent not to pay a first-half dividend," Westpac said.

Last month, the Australian Prudential Regulation Authority advised banks that they no longer needed to pause dividends, adopting a softer stance than its April request that boards "seriously consider" suspending payments because of the pandemic.

Commonwealth Bank of Australia last week said its final dividend would be A$0.98, while Bendigo and Adelaide Bank Ltd. on Monday deferred a decision on its final dividend. Australia & New Zealand Banking Group Ltd. deferred its interim dividend, and National Australian Bank Ltd. paid an interim dividend of A$0.30.

Westpac's closely watched Common Equity Tier 1 capital ratio was flat at 10.80%, while it reported a net interest margin of 2.05% for the third quarter, down 8 basis points on low interest rates.

Westpac also provided an update on the loan deferral support it had been providing customers as part of an industry-wide "loan holiday" initiative during the pandemic. It said 78,000 mortgages, worth A$30 billion, are currently in deferral, down from 135,000 relief packages worth A$51 billion.

"At this point, following the three month check-in, around half are expected to return to making payments," said Westpac.

The bank said it had checked in with 85% of customers who had deferred loans. 



  Write to Alice Uribe at alice.uribe@wsj.com