Banks’ balancing acts becoming precarious with margins under pressure

about 6 per cent from a year ago but the high levels of property-related household debt combined with a regulatorengineered slowdown in the housing market mean margins are likely to come under increased pressure.

Westpac, which yesterday became the last of the majors to report its first-half earnings, said recent mortgage rate increases would help lift its net interest margin after a contraction of 0.4 percentage points in the first half.

However Ernst and Young’s Tim Dring said that won’t mean much suffers.

“While rate increases benefit the banks’ earnings and margins, they also have the potential to put additional pressure on an already highly indebted household sector,” said Mr Dring, EY Oceania’s if affordability banking and leader.

“The banks’ ability to extract additional margin through differential rate repricing on residential property lending will become even more of a balancing act.”

Announcing a 3 capital markets per cent rise in first-half profit to $4.02 billion, Westpac said mortgage lending was up 6 per cent on a year earlier – but growth of 5 per cent is expected in 2018.

Making mortgages too costly to consumers already contending with sluggish wage growth could depress demand.