This was published 7 months ago
Westpac braces for economic slowdown as rate hikes bite
By Millie Muroi
Westpac boss Peter King has warned of slower economic growth amid cost of living pressures and higher interest rates as the bank looks to turn its fortunes around following what the chair termed a difficult and turbulent time for the company.
At the bank’s annual general meeting on Thursday, Westpac chair John McFarlane said the company had weathered “some years of erosion” in its market position but that it had since stabilised.
Westpac chief executive Peter King (right) said customer stress was concentrated in the bank’s mortgage portfolio.Credit: Jamila Toderas
“I am conscious the past few years have taken their toll on our share value, which I regret,” he said. “We have seen the worst, but still require further improvement.”
McFarlane said Westpac remained operationally and technologically complex compared to peers following several historical acquisitions that were not fully integrated, but that he was confident the best was yet to come for the bank despite near-term uncertainties on the economic front.
King said Australia was navigating a challenging economic environment after bouncing back strongly from the pandemic and that the level of hardship in the economy would depend on unemployment levels.
“The recovery in activity and high inflation have driven up interest rates,” he said, adding Westpac bank was ready to navigate slower economic growth, revenue headwinds and higher costs. “If unemployment increases, it’ll get tougher.”
King said it had been a difficult year for many people, with some customers needing the bank’s help to manage cost of living pressures. “At the end of our 2023 financial year, 13,000 customers were in hardship,” he said.
Credit card stress had unexpectedly dropped in the past six months, King said, but mortgage stress and business stress levels had increased. While delinquency levels were at historically low levels, King said the mortgage portfolio was where most of the stress was concentrated.
While banks have broadly pared back growth in home loans amid intense competition, Westpac grew new loans by 5 per cent in the 2023 financial year to $486 billion, which was a 1.2 times increase over “system”, or the average of other lenders.
The bank’s home loan growth has slowed to be roughly in line with system in recent months, which King said the bank would continue to target as its growth rate in the mortgage market amid “extreme” competition.
“That [competition] has seen the margin business come down quite a bit,” he said. “We will do what we can. We’ve increased some of our pricing on the basic product, reduced some of the discounts in the fully-featured product, but it’s a very competitive market at the moment.”
At the AGM, Westpac was also questioned about its climate plans and requirement for upstream oil and gas customers to have “credible transition plans” in place before 2025 to receive corporate lending.
Greg Mullins AO, Australia’s longest serving fire chief, was among those calling on banks to stop bankrolling the expansion of coal, oil and gas projects, with others questioning whether lending to companies expanding projects in these fields was consistent with limiting global warming to 1.5 degrees.
While the board refused to drawn on commenting on specific customers, McFarlane said if the bank stopped financing certain projects, they would simply get financed by another lender. “I think it’s better that it’s financed with people whose banks have got commitments to the future to become net zero,” he said.
Westpac’s climate change position statement and action plan, aimed at making the bank a net zero, climate-resilient bank, received 91 per cent of shareholder proxy votes in favour, putting Westpac on track to be the first Australian bank to put up its own climate resolution and get it passed.