(Reuters) -Australia’s No.3 lender Westpac Banking Corp on Monday reported a drop in annual profit, hurt by competition in its home lending business and a charge related to the sale of its life insurance unit.

Westpac also revised its target for costs incurred up to A$8.6 billion by the 2024 financial year, citing wage increases from a tight labour market and continued regulatory costs.

The new cost target marks a departure from its A$8 billion by FY24 target set in May 2021, as part of a cost-cutting exercise which analysts had termed “ambitious”.

However, the bank saw a 19% reduction in annual operating expenses, benefitting from lower asset writedowns and lower staff expenses.

Annual profit at the bank was hit by a A$1.3 billion charge recorded in the second-half, primarily because of a loss on the sale of its life insurance business.

While its lending margins in the second half did recover slightly from the first half, full-year margins were still down 13 basis points from last year. In contrast, rival Australia and New Zealand Banking saw only a 1 basis point contraction in full-year margins.

Since May, Australian banks have moved in step with the Reserve Bank of Australia to pass on rate hikes to their customers, lifting lending margins in the second half.

Cash earnings at Westpac came in 1.4% lower at A$5.28 billion for the year ended September, marginally beating a Morgan Stanley estimate of A$5.23 billion.

Westpac declared a final dividend of 64 Australian cents per share, compared with 60 Australian cents last year.

($1 = 1.5610 Australian dollars)

(Reporting by Harshita Swaminathan and Savyata Mishra in Bengaluru; editing by David Evans and Deepa Babington)