Tag: Westpac

Strong Australian GDP growth won’t last

Though Australia’s economic growth is currently being buttressed by a number of global and domestic factors, a number of weaknesses will see GDP growth drop back below trend by the end of next year, says Westpac via InvestorDaily.

According to Westpac’s June market outlook report, the 1 per cent GDP growth recorded in the first quarter of 2018 was an “above trend outcome” and “further confirmation that the Australian economy performed solidly over the past year”.

But report co-author and senior economist Andrew Hanlan indicated that this growth would not be sustained in the years ahead.

“Areas of weakness persist and are likely to weigh on the outlook,” Mr Hanlan wrote.

The current growth was being sustained by a cluster of both global and domestic forces, such as global growth which grew 0.6 per cent to 3.8 per cent in 2017, “the strongest pace since 2011”.

“We expect world growth to hold around this 3.8 per cent pace in 2018, supported by the US. However, conditions in China are likely to moderate,” the senior economist noted.

Furthermore, drags on commodity prices and mining investment had minimised, though “not quite complete”.

Other growth drivers such as public demand (that is, activity or investment undertaken by the public sector or government), business construction and exports had also pushed up growth, according to Mr Hanlan.

However, a number of weaknesses persist, particularly regarding consumer spending – which was “choppy”, “slightly below trend” and unsustainable – and housing.

“The consumer is vulnerable at a time of weak wages growth, high debt levels and slipping house prices,” with falling house prices potentially resulting in “negative spill-overs for consumer demand”.

“The housing sector is cooling as lending conditions tighten, with prices easing back from recent highs,” Mr Hanlan added.

Furthermore, jobs growth has slowed and home building activity shrank by 5 per cent in 2017.

“We expect GDP growth to moderate to 2.7 per cent in the year to December 2018 and then slip to a below trend 2.5 per cent for December 2019.”

ASIC commences civil penalty proceeding against Westpac for poor financial advice

ASIC has commenced proceedings in the Federal Court of Australia against Westpac Banking Corporation in relation to alleged poor financial advice provided by one of its former financial planners, Mr Sudhir Sinha.

In Court documents filed yesterday, ASIC alleges that, in four sample client files selected by ASIC, Mr Sinha breached the ‘best interests’ duty under the Corporations Act (‘the Act’), provided inappropriate financial advice, and failed to prioritise the interests of his clients.

Mr Sinha provided financial advice in the Perth area as an employee of Westpac from 2001 to November 2014.  In June 2017, Mr Sinha was banned by ASIC from providing financial services for a period of five years as a result of his failure to meet his ongoing advice service obligations (refer 17-178MR).

ASIC contends, as Mr Sinha’s responsible licensee during that period, Westpac is liable for the alleged breaches of the ‘best interests’ obligations by Mr Sinha under section 961K of the Act.  ASIC also alleges that Westpac contravened sections 912A(1)(a) and (c) of the Act, which requires Westpac to do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly, and to comply with financial services laws.

Section 961K of the Act is a civil penalty provision, and attracts a maximum penalty of $1 million per contravention.

Separately, Westpac has a significant remediation programme underway in respect of Mr Sinha’s conduct.  Westpac has reported to ASIC that, as at 14 June 2018, it has paid approximately $12 million in compensation to clients impacted by Mr Sinha’s poor advice and ongoing advice service failures.

Westpac Dodges Rate Rigging Charges

The Federal Court has determined ASIC failed to prove Westpac manipulated the bank bill swap rate, but the judge found the bank engaged in unconscionable conduct, via InvestorDaily.

Justice Beach of the Federal Court has handed down a 643-page judgement on a civil court case brought by ASIC that alleged Westpac manipulated the bank bill swap rate (BBSW).

In his judgement, Justice Beach found ASIC has “not made out its case against Westpac” concerning market manipulation or market rigging.

However, he did find that Westpac engaged in unconscionable conduct under s12CC of the ASIC Act on four occasions (6 April 2010, 20 May 2010, 1 and 6 December 2010) “by trading Prime Bank Bills in the Bank Bill Market with the dominant purpose of influencing yields and where BBSW is set”.

Westpac was also found to have contravened paragraphs 912A(1)(a), (c), (ca) and (f) of the Corporations Act, which relate to the obligations of financial services licensees to operate efficiently, honestly and fairly.

ASIC did not make out its case in respect to any of its other claims, said the judgement.

In his summary, Justice Beach said Westpac had failed to take “reasonable steps” to ensure its representatives did not engage in trading in Prime Bank Bills with the “sole or dominant purpose of manipulating the BBSW”.

“Further, in my view Westpac failed to ensure that its traders were adequately trained not to engage in trading with such a sole or dominant purpose,” said the judgement.

“This should have been reinforced and stipulated to them orally and in writing. In those circumstances, Westpac also contravened s 912A(1)(f).”

Federal Court finds Westpac traded to affect the BBSW and engaged in unconscionable conduct

ASIC says Justice Beach of the Federal Court today found that Westpac engaged in unconscionable conduct under s12CC of the Australian Securities and Investments Commission Act 2001 (Cth) by its involvement in setting the bank bill swap reference rate (BBSW) on 4 occasions.

In civil proceedings brought by ASIC, the Court found that on these occasions, Westpac traded with the dominant purpose of influencing yields of traded Prime Bank Bills and where BBSW set in a way that was favourable to its rate set exposure.

The court also found Westpac had inadequate procedures and training and had contravened its financial services licensee obligations under s912A(1)(a), (c), (ca) and (f) of the Corporations Act 2001 (Cth)

His Honour said in his judgement, “Westpac’s conduct was against commercial conscience as informed by the normative standards and their implicit values enshrined in the text, context and purpose of the ASIC Act specifically and the Corporations Act generally.”

A further hearing of this proceeding on penalty and relief will be held on a date to be determined.

Background

ASIC commenced legal proceedings in the Federal Court against the Australia and New Zealand Banking Group (ANZ) on 4 March 2016 (refer: 16-060MR) and against National Australia Bank (NAB) on 7 June 2016 (refer: 16-183MR).

On 10 November 2017, the Federal Court made declarations that each of ANZ and NAB had attempted to engage in unconscionable conduct in attempting to seek to change where the BBSW was set on certain dates and that each bank failed to do all things necessary to ensure that they provided financial services honestly and fairly. The Federal Court imposed pecuniary penalties of $10 million on each bank (refer: [2017] FCA 1338).

On 20 November 2017, ASIC accepted enforceable undertakings from ANZ and NAB which provides for both banks to take certain steps and to pay $20 million to be applied to the benefit of the community, and that each will pay $20 million towards ASIC’s investigation and other costs (refer: 17-393MR).

On 30 January 2018, ASIC commenced legal proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA) (refer: 18-024MR).

On 8 May 2018, CBA announced that ASIC and CBA reached an in-principle agreement to settle ASIC’s claims (refer: CBA ASX Announcement). CBA and ASIC will be making an application to the Federal Court for approval of the settlement.

ASIC has previously accepted enforceable undertakings relating to BBSW from UBS-AG, BNP Paribas and the Royal Bank of Scotland (refer: 13-366MR, 14-014MR, 14-169MR). The institutions also made voluntary contributions totaling $3.6 million to fund independent financial literacy projects in Australia.

In July 2015, ASIC published Report 440, which addresses the potential manipulation of financial benchmarks and related conduct issues.

On 28 March 2018, Parliament passed legislation to implement financial benchmark regulatory reform.

On 21 May 2018, the new BBSW calculation methodology commenced, calculating directly from market transactions during a longer rate-set window and involving a larger number of participants. This means that the benchmark is anchored to real transactions at traded prices (refer: 18-144MR).

Westpac 1H18 Result Stronger Than Expected

Westpac released their 1H18 results today. It was an interesting counterpoint to recent announcements, with stronger NIM, including from Treasury. They CET1 ratio fell a little, but they are still well placed. There were no signs of particular stress in their mortgage books, and they also were able to lift margin by reducing rates on some deposits, though they did signal higher funding at the moment. They also underscored the migration to digital channels which is well in hand, and customer led.

Statuary profit net profit was $4,198m up 7%, on the prior corresponding period (1H17), and cash earnings was up 6% to $4,251m.

Cash return on equity (ROE) 14.0%, at top end of the 13 – 14% range Westpac is seeking to achieve. The dividend was unchanged at 94 cents per share,

The Federal Government bank levy cost Westpac $186 million pre-tax for the six months. The levy will be paid out of retained earnings and is equivalent to 4 cents per share.

The Net Interest margin was up 7% from the prior period, and a rise in Treasury and Markets income contributed  4 basis points while margins excluding Treasury and Markets increased 3 basis points.

Net interest income increased $665 million or 9% compared to First Half 2017, with total loan growth of 5%, mostly from Australian housing which grew 6%. Reported net interest margin increased 11 basis points to 2.16%, reflecting higher spreads on certain mortgage types (including investor lending and loans with an interest-only feature), and increased deposit spreads. These were partly offset by the Bank Levy which was effective from July 2017.

Non-interest income decreased $281 million or 9% compared to First Half 2017 primarily due to a decrease in trading income of $226 million and the impact of economic hedges on New Zealand earnings ($63 million lower).

Expenses were up 1%, and included $34 million relating to the Royal Commission. They benefited from $131m productivity savings.

Stressed assets to total committed exposure were down 5 basis points over the year, but moved from 1.05% in September to 1.09% in March, up 4 basis points.

Mortgage delinquencies were a little higher, but from a low base.

The CET1 capital ratio was 10.5%, and the liquidity coverage ratio was 134% and the net stable funding ratio 112%.

Westpac’s CET1 capital ratio was 10.50% at 31 March 2018, 6 basis points lower than 30 September 2017.

Looking at the divisional summaries:

Consumer Bank (CB) has continued to be a key driver of the Group’s growth, lifting cash earnings by 6%. Disciplined balance sheet growth, flat operating expenses and a $60 million reduction in impairment charges were the key drivers of performance. Net interest income increased from a 2% rise in mortgages, a 1% increase in deposits and a 1 basis point improvement in margins. Margins benefited from lower funding costs, including improved spreads on term deposits, and prior period loan repricing although this was partly offset by the full period impact of the Bank Levy and from customers switching to lower rate loans. Non-interest income was lower, mostly due to the elimination and reduction of certain transaction and account keeping fees and lower credit card interchange fees. This was partly offset by the non-repeat of customer refunds and payments that occurred in Second Half 2017. Expenses were little changed (up $3 million) as the division continues to transform itself via digital while enhancing service. More customers migrating to digital channels has supported a 4% decrease in branch transactions and a reduction of 21 branches in the last six months. The reduction in impairment charges reflects the lower seasonal unsecured personal lending write-offs.

Looking in more detail at the Australian Mortgage portfolio, we see a reduction in interest only loan flow, and a rise in loans from brokers. They have been growing their relative share of investor loans in terms of flow.

They showed that delinquencies on interest only loans are LOWER than for P&I loans.

Personal loan delinquencies have risen.

Mortgage delinquencies are a little higher with WA significantly above, though it now represents just 9% of the portfolio, compared with system 1t 12%.

Business Bank (BB) delivered a 3% increase in cash earnings. Lending increased 2% with SME business lending up 2%, and commercial lending increasing 2%. Deposits rose 1% over the half, mostly in term deposits. The net interest margin was up 4 basis points, from repricing on certain mortgages in Second Half 2017 and improved term deposit spreads partially offset by the full period impact of the Bank Levy. Non-interest income was up 1% with higher business line fees. Expenses were 1% higher, mostly from higher investment related costs, and regulatory and compliance costs. Credit quality has been sound, although stressed assets to TCE were up 35 basis points, mostly due to commercial customers moving into the watchlist category. Impairment charges decreased $6 million from lower impaired downgrades in the commercial portfolio.

BT Financial Group (Australia) lifted cash earnings 13% with higher funds, an increase in life insurance premiums and a stronger contribution from Private Wealth. Growth was also supported by provisions for customer refunds and payments raised in the Second Half 2017 that were not repeated. Partially offsetting these gains were lower advice income and seasonally higher general insurance claims. Superannuation balances and platform funds were both up 3% while packaged funds increased 4%. Growth was supported by stronger investment markets and $2.6 billion of net flows onto Panorama. Fund margins were lower including from the migration of customers into MySuper accounts which has now been completed. Expenses were well managed, down 1%. The decline was consistent with normal seasonal patterns (higher costs are incurred around the end of the June financial year) and continued productivity gains. Investment spending was a little higher including from the launch of the new super product, “BT Super Invest”. Regulatory and compliance costs were little changed but remain elevated.

Westpac Institutional Bank (WIB) delivered a 4% lift in cash earnings to $551 million. The $21 million rise was due to a 1% rise in core earnings and a $9 million benefit from impairment charges. Supporting core earnings, lending increased by 3% and deposits were 7% higher while markets related income also increased. These gains were partially offset by lower net interest margins and a reduction in Hastings fees. While investing more, particularly in payments, expenses were lower from the full period impact of productivity initiatives. Continuing good credit quality and the workout of further impaired assets led to another impairment benefit in First Half 2018.

Westpac New Zealand delivered cash earnings of NZ$482 million, down 5%, compared to the prior half. The business generated 3% core earnings growth although this was more than offset by a small impairment charge which followed a NZ$40 million impairment benefit in the Second Half 2017. A 3% lift in net interest income was the main driver of core earnings growth with lending up 2%, deposits rising 5% and margins increasing 6 basis points. The rise in margins followed some repricing of mortgage and business lending and improved deposit spreads. Expenses were 1% lower as the benefits from the division’s transformation program flowed through. The program has led to a reduction in the size of the branch network and increased self-serve via digital channels. Impairment charges increased NZ$67 million over the half, as Second Half 2017 benefited from the improvement in the dairy industry and from the increase in consumer delinquencies in First Half 2018.

The Group Businesses delivered cash earnings of $58 million in First Half 2018, up $50 million on the prior half. The increase was due to a higher Treasury contribution (from interest rate risk management) partially offset by higher expenses and an increased impairment charge. Higher expenses were mainly due to increased investment and a rise in regulatory and compliance costs, including expenses associated with the Royal Commission and higher employee costs. The impairment charge in Group Businesses was mostly related to movements in centrally held impairment overlays. The impairment charge was $13 million in First Half 2018 compared to a $32 million benefit in Second Half 2017 – a $45 million turnaround.

They made specific comments on the need to restore their reputation.

The First Half 2018 has continued to see the industry (including Westpac) under intense scrutiny including from the Royal Commission into Financial Services.

Restoring the Group’s reputation has remained a focus and the Group has continued to implement a number of programs aimed at improving trust. In particular, Westpac has largely completed the implementation of the Australian Banking Association’s “Six point plan” with the Group waiting for finalisation of the industry Code of Banking Practice to complete implementation. In 2017 the Group also commenced a broader program to reduce complexity and resolve prior issues that have the potential to impact customers and the Group’s reputation. These reviews have identified some previous instances where the Group has not met industry or community standards and Westpac is taking action to put things right so that customers are not at a disadvantage from past practices. Work on this program over the last 12 months included:

  • Progressing the review of products to reassess their features and how the Group had engaged with customers. As part of these reviews, 150 changes were made including more than halving the number of consumer products on offer;
  • Cutting transaction fees for 1.3 million customers, removing ATM fees, and introducing a new low rate credit card; and
  • Continuing remediation of previous issues, paying out $39 million to customers from our 2017 provision for customer refunds and payments.

Risks In The Mortgage Portfolio Are Higher – UBS

UBS continues their forensic dissection of the mortgage industry with the release of their analysis of data from Westpac, which the lender provided to the Royal Commission. This was representative data from the bank of 420 WBC mortgages analysed by PwC as part of APRA’s recent review. APRA Chairman Wayne Byres found WBC to be a “significant outlier”, with
PwC finding 8 of the 10 mortgage ‘control objectives’ were “ineffective”.

UBS says for the first time information on borrower’s Total Debt-to-Income ratios (not Loan-to-Income) has been made available. They found WBC’s median Debt-to-Income at 5.4x, with 35% of the sample having Debt-to-Income ratios of >7x. Further 46% of the mortgage applications had an assessed Net Income Surplus of <$250 per week.

This data raises questions regarding the quality of WBC’s $400bn mortgage book (70% of its loans). While WBC has undertaken significant work to improve its mortgage underwriting standards over the last 12 months, we expect it and the other majors to further sharpen underwriting standards given the Royal Commission’s concerns with Responsible Lending. This could potentially lead to a sharp reduction in credit availability.

This raises two questions. First how much tighter will credit availability now be. We continue to expect an absolute fall in loan volumes, and this will translate to lower home prices.

Second, is this endemic to the industry, or is Westpac really an outlier? From our data we see similar patterns elsewhere, so that is why we continue to believe we have systemic issues.

  1. Income is being overstated and expenses understated.
  2. Customers have multiple loans across institutions and these are not always being detected, so their total debt burden is higher than the bank sees.

Combined these are significant and enduring risks. Chickens will come home to roost! Especially if rates rise.

BT considered ending ‘share of revenue’

From InvestorDaily.

Public hearings into the financial advice sector continued on Friday as BT Financial Advice general manager Michael Wright continued giving evidence.

Counsel assisting Rowena Orr grilled Mr Wright on the remuneration practices of Westpac/BT and whether its planners could be considered professionals when they are incentivised with sales targets.

Mr Wright said that while advisers are not viewed as ‘professionals’ by Australians in the same way that doctors are, the perception is changing for the better.

Furthermore, he said, the ‘balanced scorecard’ for Westpac advisers will be changed to include more non-financial factors.

“We’ll be setting peoples’ remuneration off their qualifications, based off their competency as an adviser, based off the standards that they go through with advisers,” he said.

“We will not set people’s remuneration – fixed or variable – based off how much money they write,” Mr Wright said.

However, Ms Orr pointed out that one-fifth of the ‘balanced scorecard’ for the company’s advisers will include financial measures.

“We debated this long and hard. The reality is we want to have a viable, sustainable, professional business. We’ve not a charity,” he said.

“We considered removing revenue from the scorecard and having 100 per cent non-financials,” Mr Wright said.

From 1 October 2018, Mr Wright said, BT will be ending grandfathered commissions for superannuation and investments – although risk commissions will remain (as per the Life Insurance Framework).

When it comes to the advice business he oversees, Mr Wright said he would be “delighted” if BT moved to a completely fee-for-service model.

However, with his “BT product provider hat on”, he said there is a first-mover disadvantage to being the first institution to end grandfathering completely.

Westpac introduces stringent new expenses process

Westpac has tightened its expense analysis for mortgages. Sound of door firmly shutting after the horse has bolted! I wonder is this might impact the current ASIC case on mortgage underwriting with Westpac? The bank will still apply either the higher of the customer-declared expenses or the Household Expenditure Measure (HEM) for serviceability purposes.

From The Adviser.

The Westpac Group has updated its credit policies so borrower expenses will need to be captured at an “itemised and granular level” across 13 different categories and include expenses that will continue after settlement as well as debts with other institutions.

The changes, which apply to all loans submitted to any bank within the Westpac Group from Tuesday (17 April), aim to “provide a more accurate view” of borrower expenses so that the bank can “better determine their financial situation and repayment ability”.

The move comes just weeks after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry questioned whether credit providers have adequate policies in place to ensure that they comply with “their obligations under the National Credit Act when offering broker-originated home loans to customers, insofar as those policies require them to make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit 25 contract, to make reasonable inquiries about the consumer’s financial situation, and to take reasonable steps to verify the consumer’s financial situation”.

Despite the commission raising questions over whether the use of benchmarks is appropriate when assessing the suitability of a loan for a customer, the Westpac Group changes will still apply either the higher of the customer-declared expenses or the Household Expenditure Measure (HEM) for serviceability purposes.

Expense types

Brokers are being advised that they will no longer be able to bundle living expenses.

Instead, for all loans submitted from Tuesday, 17 April, brokers will need to capture all applicable expenses over 13 categories during the needs assessment conversation.

“Absolute Basic Expenses” will be replaced with seven mandatory expense types. These are:

  • Clothing and personal care
  • Groceries
  • Medical and health
  • Transport
  • Insurance
  • Telephone, internet, pay TV and media streaming subscriptions
  • Recreation and entertainment

There will also be an additional optional expense type, too. These are:

  • Owner-occupied property utilities, rates and related costs
  • Childcare
  • Education
  • Investment property utilities, rates and related costs
  • Other

Notional rent

An additional category of rented property utilities and related costs will be applied if the customer’s post-settlement housing situation is either “rent”, “board” or “living with parents”.

Where an applicant has this type of post-settlement housing situation, if the monthly rental amount is stated to be less than $650 per month, a “notional” rent amount of $650 per month will be applied automatically to each applicant on the loan, regardless of marital status.

For other categories, the Westpac Group has outlined that a broker will still be able to enter $0 for an expense type, but for certain mandatory expenses, when $0 is entered into an expense type, the broker will need to select a reason to explain why the expense does not apply to the applicant.

Evidence

It will also be mandatory for the customer to provide evidence for other financial liabilities, including ongoing rent/board, child support and any secured or unsecured debts held with other financial institutions.

These can include documents such as bank statements, signed and dated rental agreements, letters from property managers, transaction listings, court order or child support agency letters.

For debts with other financial institutions, the documents cannot be more than six weeks apart from allocation date.

This documentation must be included in the loan application submission. Assessors will then verify the documents submitted.

The existing requirements for HELP, HECS and TSL debt will still apply.

Declaration

The customer must also now sign a “financial acknowledgment” as part of the loan offer documents indicating that all details relating to expenses and debts are true.

The bank said: “Westpac is committed to responsible lending and ensuring that we have a clear understanding of our customers’ financial situations.

“We are proud to work closely with our broker partners to continue to meet our responsible lending obligations and do the right thing by our customers. That’s why we are updating the Westpac credit policies to enhance the way we capture living expenses, commitments, and verify documentation.”

It added: “It’s all about looking after the customer by fully capturing their financial commitments to ensure they can adequality manage the mortgage liability they are potentially signing up for.”

How the changes will impact lodgements

ApplyOnline (AOL) and aggregator systems are currently being updated to cater for these changes.

The bank has outlined that any applications submitted before 17 April will be assessed as pipeline deals.

Applications saved or drafted in ApplyOnline before this date (or for applications resubmitted after this date) will need to be updated with the new expense type.

The banking group warned that any changes outside of the acceptable amendments under pipeline will require a reassessment and the previous approval may no longer be valid.

Brokers are being asked to check Westpac Broker Net or speak to their BDM if they have any further questions.

Crackdown on expenses

The move by Westpac marks the first wholesale change made by the major banks to tighten up their expenses collection process following the royal commission.

The commission was damning in its critique of the lenders’ policies when it came to ensuring customers can afford their home loans, with ANZ being called out for their “lack of processes in relation to the verification of a customer’s expenses”, and both Westpac and NAB revealing that there had been instances of their staff accepting falsified documentation for loans.

For example, it was revealed that there had been “at least 55 instances of Westpac staff either falsifying or accepting falsified supporting documentation in connection with home and personal loan applications, [and] a number of instances of Westpac staff receiving payments from referrers for the referral of customers to Westpac for loans”; while some NAB staff members were allegedly “charging NAB customers a fee for personal loans… made as cash payments under the table”.

It is expected that several other banks will follow in the footsteps of Westpac and make similar changes to their expense verification process in the coming weeks.

Westpac Says The Fed May Lift Rates Faster And Higher Than Markets Currently Expect

From Business Insider.

Now here’s an interesting paragraph from the minutes of the US Federal Reserve’s January FOMC meeting released on Wednesday.

Many participants noted that financial conditions had eased significantly over the intermeeting period; these participants generally viewed the economic effects of the decline in the dollar and the rise in equity prices as more than offsetting the effects of the increase in nominal Treasury yields.

So we know the question you’re asking — what are “financial conditions” and why is this interesting?

According to the St Louis Fed, financial conditions indices “summarise different financial indicators and, because they measure financial stress, can serve as a barometer of the health of financial markets”.

Using short and long-term bond yields, credit spreads, the value of the US dollar and stock market valuations, it attempts to measure the degree of stress in financial markets.

What the minutes conveyed in January was despite a lift in longer-dated bond yields, strength in stocks and decline in the US dollar suggest that financial conditions still improved.

So why is that important?

According to Elliot Clarke, economist at Westpac, it suggests the Fed may need to hike rates more aggressively than markets currently anticipate.

“That financial conditions have eased at a time when the FOMC is tightening policy will grant confidence that downside risks associated with further gradual rate increases and quantitative tightening are negligible,” he says.

“More to the point, this implies that risks to the FOMC rate view, and Westpac’s, are arguably to the upside.”

Adding to those risks, and even with the correction in US stocks seen after the January FOMC meeting was held, Elliot says in February “we have seen a further significant increase in government spending and signs of stronger wages”.

He also says the stronger-than-expected consumer price inflation in January — also released after the FOMC meeting was held — “will have also given the FOMC greater cause for confidence that inflation disappointment is behind them and that the risks are instead skewed to inflation at or moderately above target”.

As such, Elliot says the tone of the January minutes points to gradual rate rises from the Fed, mirroring what was seen last year.

However, the risk to this view, he says, is for more and faster hikes in the years ahead.

“In these circumstances, a continued ‘gradual’ increase in the fed funds rate through 2018 and 2019 — implying five hikes in total — is still the best base case,” he says.

“However, a careful eye will need to remain on financial conditions.

“Should they continue to move in the opposite direction to policy, a more concerted effort by the FOMC may prove necessary to keep the economy on an even footing.”

Westpac remediates credit card customers more than $11 million

ASIC says Westpac has provided around $11.3 million in remediation to around 3,400 credit card customers after ASIC raised concerns about its credit card limit increase practices.

In 2016, ASIC announced that Westpac had agreed to improve its lending practices when providing credit card limit increases to customers to ensure that reasonable inquiries are made about customers’ income and employment status (refer: 16-009MR).

As part of Westpac’s commitment, it reviewed credit limit increases previously provided to affected cardholders where they subsequently experienced financial difficulty. Following this review, Westpac provided remediation to around 3,400 customers, which included refunds of around $3 million for fees and interest, and around $8.3 million in credit card balances waived.

Westpac engaged an independent expert to provide assurance over the remediation program and has made the first two payments (of the $1 million total contribution) to support financial counselling and financial literacy, with further payments to follow in 2018 and 2019.

Background

In 2014 ASIC conducted a review focussing on credit card providers’ invitations to customers to increase credit card limits. ASIC’s concerns with Westpac’s processes were identified through the course of this review.

The Government has introduced reforms into Parliament that will prohibit credit card providers from sending credit card limit increase invitations regardless of whether the consumer has provided their consent.

The Government’s reforms will also require credit card providers to assess whether a credit card limit might be unsuitable based on the consumer’s ability to repay the proposed credit limit within a period prescribed by ASIC, rather than the consumer’s ability to meet the minimum repayment.