Bank shares concerns

Repossessions near GFC levels for Westpac

WESTPAC chief executive Peter King has warned the bank is concerned about its high debt to income loans, revealing it had taken possession of about 200 homes after borrowers defaulted on payments.

Mr King, who runs one of Australia’s biggest banks, said the number of homes in possession was near the levels at Westpac during the Global Financial Crisis but noted this was still a muted number and signalled the willingness of borrowers to keep paying their mortgages.

Mr King also noted the lending market for homes was “the most competitive market that I’ve seen in my career”.

He said Westpac was not looking to compete with rivals who might be writing loans below the cost of capital.

“We’re playing in the market but we’re not growing above the market,” he said.

“From a credit perspective it’s a good time to write business you’ve got big buffers, property prices have come down.”

He said borrowers had still not faced the full force of recent rate rises, with only eight of the recent 10 rate rises flowing through to variable rate borrowers, while those on fixed loans yet to roll off continued paying costs well below market rates.

“Interest rates are a blunt tool, what we’re looking at in our portfolio is who might need help,” Mr King said.

“The part of the portfolio we’re watching very closely are high debt to income that’s people who borrowed to their maximum debt capacities.”

He said Westpac had assessed many of its current fixed rate borrowers as though they would be required to pay higher variable rates when it wrote those loans.

Speaking at an event in Sydney, Mr King said the bank was well positioned coming into a looming market downturn after reshaping its bank book over recent years to slash exposure to commercial lending and higher risk investor and interest only borrowing.

Mr King said Westpac had cut its exposure to lending on commercial buildings from almost 16 per cent, after the bank acquired troubled rival St George in 2008, to just 6 per cent of its total lending book.

“From the perspective of us it’s going to feel strange to say this but thing are working pretty well domestically for us,” he said.

Mr King said Australia’s banking landscape was moving towards one of scale, predicting several smaller operators will exit the system in the coming decade.

“If you think about the cost of investment in digital technology to compete for the customer, cyber to protect your data and your customer, AML CTF banking regulation, running the bank, you need scale,” he said.

“We may have less small players but that’s a consequence of what the industry is being asked to do.”

Suncorp signalled cost of capital as a key impediment for its bank as part of its justification for its sale in submissions to the Australian Competition and Consumer Commission.

Bendigo and Adelaide Bank similarly noted the need to lower cost of capital as part of an argument for why the Suncorp sale to ANZ should be blocked.

Speaking at the same event earlier, HSBC CEO Antony Shaw said the bank saw interest rates climbing towards terminal rates, after 10 consecutive rate rises from the Reserve Bank of Australia.

But Mr Shaw said HSBC was not concerned the string of rate rises had locked some borrowers into being unable to refinance loans.