Westpac (ASX: WBC) has held its interim dividend despite the cost of refunding customers helping drag down first-half profit by 22 per cent to $3.296 billion.

Australia's second largest bank set aside $617 million to cover refunds and associated costs following the financial services royal commission, contributing to the fall in cash earnings for the six months to March 31 from $4.251 billion a year earlier.

Westpac also took a $136 million hit on the restructure of its wealth unit, but will still pay a fully franked dividend of 94 cents.

Rival NAB last week slashed its dividend from 99 to 83 cents.

Westpac chief executive Brian Hartzer on Monday suggest that, while the results were disappointing, the worst may be over for the bank.

"The past six months has been a turning point," Hartzer said. "We are proactively addressing legacy issues while improving our products and services to ensure they deliver the right customer outcomes."

Westpac said it has now made $1.45 billion in pre-tax provisions over the past three years for customer remediation programs, including $1.25 billion for refunds.

The bank predicted a challenging second half amid softening house prices and slowing credit growth, but said restoring customer trust remains a priority.

"Despite our 202-year history, we know we still have to win back customers' trust," Hartzer said.

"We have improved complaints handling, removed all teller incentives, and introduced new digital initiatives."

The bank's first-half net interest margin - the difference between interest charged on a loan and that paid to fund it - fell to 2.12 per cent from 2.28 per cent a year ago.

Hartzer said the bank made around $146 million in cost savings over the half - including reducing full time equivalent staff by two per cent or 788 - and was on track to deliver its target of $400 million in productivity savings over the full year.

Westpac's disappointing first half

  • Cash profit down 22pct to $3.296b
  • Statutory profit down 24 pct to $3.173b
  • Net operating income down 10pct to $9.979b
  • Interim dividend unchanged at 94 cents, fully franked