Westpac has cut its dividend for the first time in a decade after the bank’s full-year cash profit fell 15% to $6.85bn.

Australia’s second-largest lender also announced a $2.5bn capital raising to help meet regulatory capital requirements and expected litigation costs related to the issues that forced a near $1bn customer remediation provision.

Westpac, whose net profit slipped 16% to $6.78bn in the year to 30 September, cut its final dividend from 94 cents to a fully franked 80 cents after what chief executive Brian Hartzer said was a disappointing 12 months.

The last time Westpac cut its dividend was at the end of the 2009 financial year, when the financial sector was reeling from the global financial crisis.

“This decision was not easy as we know many of our shareholders rely on our dividends for income,” the bank said in a statement on Monday.

Cash earnings at Westpac’s consumer division fell 4.0% to $3.29bn during the year, while the business division fell 12% to $2.43bn.

The bank’s net interest margin – the difference between the interest Westpac earns from loans and what it pays to fund them – dipped to 2.12% from 2.13% over the year despite a second-half improvement.

Hartzer said the bank had suffered in a low-growth, low interest rate environment, while it was also weighed down by the $958m customer remediation provision – related to issues including fees for no advice and overcharged loan interest – as well as $172m for the overhaul of its wealth business.

The result follows last week’s flat full-year result from rival ANZ, which delivered a partially franked dividend for the first time in 20 years as it too blamed low interest rates and customer compensation.

Hartzer said his bank would likely continue to feel the squeeze in 2020 as the residential construction cycle heads towards its low and the Australian economy remains subdued.

He said consumers remained cautious with flat wage growth constraining spending, though lower interest rates, improved housing sentiment and targeted income tax cuts would help growth prospects.

“We also expect the recent recovery in house prices, particularly in Sydney and Melbourne, to extend into 2020,” Hartzer said.

Westpac’s annual report, also released on Monday, showed Hartzer took home $4m in realised pay for the year, but the managing director did not receive a short-term bonus after shareholders’ resoundingly rejected the bank’s remuneration report in 2018.

Hartzer, who according to the report was eligible for $1.61m in short-term bonuses, recommended to the board he not receive them.

Shareholders will vote whether or not to hand the board a second strike, and therefore a spill vote, at the bank’s annual general meeting in December.

Westpac cut full-time staff numbers by 5.0%, or 1,741, during the year as it made $405m in “productivity” savings – just above its $400m target.

Westpac said it aims to raise $2bn via a fully underwritten institutional share placement, and another $500m via a non-underwritten share purchase plan to give it an increased buffer above Apra’s “unquestionably strong” capital benchmark of 10.5%.

The bank’s common equity Tier 1 capital ratio is currently 10.7%.

The placement will be undertaken at a fixed price of $25.32, a 6.5% discount on the last close.

The bank’s shares were last trading at $27.88 and are expected to remain in a trading halt until Tuesday as it completes its capital raising.