Westpac shares boost

per cent over the first half – and by 6 per cent from a year earlier – but Australia’s second largest lender expects overall demand for housing credit to fall as regulatory measures take effect.

The bank expects mortgage growth of 5 per cent in 2018.

“We remain positive about the Australian housing market, although we expect price growth to moderate through 2017,” chief executive Brian Hartzer said.

“Housing credit growth is likely to ease a little as demand slows.”

The comment echoed that last week from ANZ chief executive Shayne Elliott, who said he was positioning his bank for a period of low credit growth. Banks have repriced their loan book to make interest-only and investor loans more expensive in order to comply with Australian Prudential Regulation Authority limits on riskier lending.

Mr Hartzer said Westpac’s margins should benefit from that repricing late in the half.

Net interest margin declined 0.4 percentage points over the first half to sit 0.7 percentage points lower than a year earlier due to higher rates for savers and funding costs.

“Net interest margins may rebound a little in 2H17, but the risk to already weak sector revenue trends is heightening given regulatory actions,” Citi analyst Craig Williams wrote in a note.

Mr Hartzer said first property price growth is expected to moderate in Sydney and Melbourne, with pockets of falls where there was overbuilding of inner city apartments.

The proportion of delinquent mortgages remained low by historic standards, with 70 per cent of customers ahead on their home loans. Mortgages overdue by 90 days or more inched up 0.02 percentage points to 0.72 per cent of home loans – up from 0.58 per cent a year earlier.

Chief financial officer Peter King called the overall result – which was broadly in line with analyst expectations – a clean one and lauded the strength of Westpac’s balance sheet as deposits grew at more than twice the rate of loans.

The institutional bank was another strong performer, with improved contributions from foreign exchange and commodities helping lift its cash earnings 34 per cent from a year earlier to $700 million.

Westpac shares closed 22¢, higher at $34.08.