Tag: Westpac

Westpac FY17 Up 3%; Margin Down – Banking on Property

Westpac has released their FY17 results. They are literally banking on property. They do not expect home prices to fall significantly and they expect mortgage lending to continue to grow.

Statuary net profit was $7,990 million, up 7% on 2016, and cash earnings up 3% to $8,062.

This is a bit lower than expected, impacted by lower fees and commission, pressure on margins, the bank levy and a one-off drop to compensate certain customers.  Despite strong migration to digital, driving 59 fewer branches and a net reduction of ~500 staff, expenses were higher than expected. There has been a 23% reduction in branch transactions over the past two years in the consumer bank. Treasury had a weak second half.

Around 70% of the bank’s loan book is one way or another linked to the property sector, so future performance will be determined by how the property market performs.

Provisions were lower this cycle, and at lower levels than recent ANZ and NAB results. WA mortgage loans have higher mortgage arrears.

The balance sheet is strong on all the critical ratios. They are “essentially done” they say.

Cash earnings per share is up 2% to 239.7 cents and the cash return on equity is 13.8%. There was no change to the dividend.

Net interest margin was 2.09%, 4 basis points lower, compared with FY16, reflecting higher wholesale funding costs, bank levy and some asset repricing. The bank levy cost $95m pretax, or 2 basis points, or 2 cents per share.

Margin improved in the second half, thanks to loan repricing and improved wholesale funding. Mortgage repricing contributed 7 basis points in 2H17.

The cost of refunding customers who were entitled to certain product discounts, but may not have been aware that they needed to specifically request them was $118 million this year, equivalent to 1.5% of earnings. This is a one-off hit.

Non-interest income was down 9%, with $209m fall in trading income and $97 million in fees and commissions.

Growth in the consumer bank (mainly mortgages) was the strongest.

Costs were up 2% to $4,604 million, and the expense ratio 42%, including productivity savings of $262 million. They still want to get below 40%, eventually. Compliance costs rose.

Total provisions fell from $3.6 billion in 2016 to $3.1 billion in FY17.

Impaired assets to gross loans were down 10 basis points to 0.22%. Their impairment charge was was down 24% over the year to $853 million, which equates to 13 basis points, down 4 basis points on last year.

Westpac is a significant property aligned bank with 62% of the loan book related to Australian mortgage lending, which showed strong growth, with net flows of $13 billion in 2H17. There were more fixed rate loans, and less interest only loans. The value of the book was up 3% in the 2H17, to $427.2 billion.  Mortgage offset balances are $38.1 billion.  Commercial property lending is 6.48% of total lending, or $49.6 billion. So overall property exposure is close to 70% of the bank! $6.9 billion are in the residential apartment sector. Inner city consumer mortgages for apartments is $14.1 billion.

They reported $18.6bn of switching from IO to P&I mortgages in 2H17.

Investor loans lending is growing and is 46.8% of flow, and 39.8% of the portfolio. Around 54% of mortgage flows are via proprietary channels, while the portfolio sits at 57%. So broker flows have lifted to 46%.

WA delinquencies remain higher than other states, but are falling slightly. Westpac says they think delinquencies in WA have peaked.

There are more properties in possession in QLD than WA, mostly in regional mining areas.

This data on vacancy rates highlights the issue with investment property in WA!

The CET1 ratio is 10.6%, above the APRA target.

In FY18, they expect lower lending growth (but they think mortgages will still grow), margin will be impacted by more mortgage switching from interest only to principal & interest and there will be a $50m headwind from ATM and transaction fees. They will target cost savings of 2-3% and await the final APRA guidance on capital weights and mortgages.

Westpac tightens up on responsible lending

From Australian Broker.

Westpac has brought in a number of responsible lending changes affecting how brokers enter in requirements and objectives (R&O) questions for clients.

“As a bank, Westpac is committed to responsible lending and meeting our conduct obligations under the National Consumer Credit Protection Act. Requirements and Objectives are a part of our responsible lending obligations,” the bank wrote in a note to brokers on Monday (30 October).

Effective from 14 November, brokers will be required to complete additional R&O questions and declarations for clients taking out certain loan types including but not limited to:

  • Fixed interest loans
  • Loans requiring lenders’ mortgage insurance
  • Loans with interest only repayments
  • Line of credit loans
  • Loans for refinancing or debt consolidation

The questions are designed to help brokers understand their client motivations, align the products to their needs, and prompt brokers to explain consequences around each choice of product to the client.

Additional R&O questions will also apply for each applicant of the loan, including for clients with foreseeable changes, special circumstances, current financial hardship, or those approaching retirement age.

“Westpac Group takes its responsible lending obligations seriously and is committed to ensuring good outcomes for our customers across first and third party lending,” Tony MacRae, general manager of third party distribution at Westpac, told Australian Broker.

“We’ll be working closely with all brokers over the coming months to support them with this new way of working – many had already adopted this approach and have been working this way for some time.”

From 8 January 2018, changes to submitted loan applications will no longer be accepted by email and will instead have to be completed through ApplyOnline.

“This will ensure that the correct R&O are captured accurately for all applications submitted and resubmitted and there is a central location that incorporates all the R&O information that has been discussed between yourself and the client with documented evidence of any loan changes,” the bank said.

Westpac Reveals ‘PayWear’ Wearable Payment Technology

Given the stalemate with Apple Pay, it is interesting to see the recent announcement that Westpac customers will soon be able to tap-and-pay hands-free with the announcement of a new wearable payment option, ‘PayWear’.  “Westpac PayWear uses the same contactless payment technology as your Debit Mastercard®. You simply tap the accessory wherever contactless payments are accepted and the transaction will be debited from your everyday bank account”.

Westpac 'PayWear'

PayWear Essentials, available early December, includes a silicone band and a ‘keeper’, which can be easily attached to an existing watch or fitness band, containing a microchip (PayWear Card) linked to the customer’s everyday transaction account.

Customers can tap and pay in the same way they regularly do with their debit card, without having to reach for their wallet or smartphone, through the new range of waterproof and battery-free wearable accessories.

Westpac Group Chief Executive, Consumer Bank, George Frazis said customers across the country embrace greater convenience and expect to be able to simply tap-and-pay.

“Australia has the highest contactless penetration in the world, and cards continue to replace cash as consumers demand convenience. We’re always looking for new ways to help make our customers’ lives easier, and with our new PayWear products, customers will be able to pay on-the-go, in one hands-free step.

“With PayWear, there is no need to search through a bag, login to an app or worry about battery life. It will be on the go with our customers and ready for use when they are.

“When speaking with customers, personal style and choice were important. In fact, 70% agreed that they would only wear a wearable device if it suited their own personal style and lifestyle. This is why we will collaborate with iconic Australian designers to create a variety of wearable accessory designs to suit different tastes, preferences and styles,” Mr Frazis said.

The first Australian designer to be announced, who will design a range of unique products for Westpac PayWear, is award-winning surfboard shaper and entrepreneur, Hayden Cox of Haydenshapes. A range of leading Australian designers will be hand-picked to speak to a wide mix of everyday Australians – from surfers and fitness fanatics, to busy parents, professionals and festival-goers.

Hayden Cox says the opportunity to collaborate with Westpac has been a natural fit when it comes to designing products that are innovative, functional and stylish.

“Functional design is something I’ve always been passionate about – particularly technology and products that improve experiences for people. It was this passion which led me to creating and filing a patent on my parabolic carbon fibre surfboard construction, FutureFlex, and wanting to uniquely design my product to improve the surfing experience.

“Working with Westpac to create an exclusive range of wearable accessories which evolve the way people make contactless payments is exciting to me. This product signals an inevitable and innovative progression of our everyday routines. While some customers may opt for the simpler Essentials range, there is also a part of the market that will want something with a little more flavour. This is where the products I’m designing will sit.”

All Westpac customers with an everyday banking account eligible for a Debit Mastercard® will be able to order a PayWear Card online via Westpac Live, which can be inserted into the PayWear accessory of their choice. The PayWear Essentials range of wristband and keeper will be available from December. The Designer range is due to be available to customers in early 2018.

Westpac customers will be able to use PayWear to make purchases on all contactless-enabled terminals.

“Unlike many other wearable payment options, our customers don’t require an expensive device to access this technology. Customers will be able to get a PayWear Essentials accessory free of charge for a limited time, making it accessible to all our everyday banking customers,” Mr Frazis said.

The announcement of PayWear builds on the Westpac Group’s strong history of digital innovation, as the first to introduce internet banking to Australia, and the first in the world to deliver fingerprint sensor technology (Touch ID) to mobile banking logon in 2014.

Westpac to refund some package customers, costs $65m

Westpac has announced it would provide refunds to some customers holding ‘packaged’ accounts after identifying that some customers did not automatically receive benefits to which they were entitled.

 

The issue affected approximately 200,000 customers who held Premier Advantage Packages with Westpac or Advantage Packages with St. George, BankSA, or Bank of Melbourne from 2010.

Under the terms of the packages, customers were entitled to a range of benefits. Customers automatically received discounts on core products such as home loans, credit cards, or transaction accounts. However, some customers did not receive discounts on ancillary products such as home and contents insurance and term deposits. The packages have since been simplified and all benefits are now automated.

Westpac Chief Executive, Consumer Bank, George Frazis, said: “At Westpac, our business depends on building long term relationships with our customers. So when we get something wrong, we want our customers to have confidence that we will put it right.

“When we identified these issues we started the process of putting things right for customers. We also notified ASIC.

“Importantly, customers do not need to do anything. Over the coming months, we will provide refunds, including appropriate interest, to any customers who may have been entitled to a benefit but weren’t aware they needed to opt in.

“Westpac apologises unreservedly for a process that did not suit customers. By automating the discounts, we have ensured that our customers will not be affected in this way again.”

Mr Frazis said that some customers with various business banking packages may also not have received some of the benefits they were entitled to. Affected customers will also receive refunds.

Refunds are expected to total approximately $65 million with an after tax cost to Westpac of around $45 million, which will be included in Westpac Group’s FY17 financial results.

Westpac will proactively contact eligible customers, but has set up a dedicated webpage to assist with any questions. Business customers can also contact their relationship banker directly.

No maths formula for rate repricing: Westpac

From Australian Broker.

There is no document or formula that exists behind Westpac’s decision to raise interest-only loan rates in light of lending speed limits imposed by the Australian Prudential Regulation Authority (APRA).

Instead, the bank has said differentiating rates between interest-only and principal and interest loans have been made as a “judgment”.

These claims came to light when Westpac’s CEO Brian Hartzner and chief financial officer Peter King faced the House of Representatives Standing Committee on Economics in its review of Australia’s four major banks in Canberra yesterday (11 October).

The bank made estimates around what the size of the gap between IO and P&I rates would be, Hartzner said. While forecasts were made around these changes, it was difficult to see exactly what would happen as it was impossible to accurately guess how many customers would switch mortgage types.

“It’s not a mathematical formula, it’s a judgment,” he said.

While there was no physical documentation that exists around different price points, Hartzner admitted the bank would have modelled around profitability and rate changes.

“Obviously we consider commercial issues in the things we do.”

When committee chair David Coleman questioned whether regulation was being used to boost bank profits, Hartzner outright denied this.

“I would reject the idea that compliance is a profit centre.”

Westpac spends $300m to $400m per year on compliance – fees which the bank was not going to recuperate, he said.

Profit was not a primary driver for these changes, he said, stressing that the main push was to manage Westpac’s balance sheet.

At the moment, around 50% of Westpac’s existing loan book consists of IO loans.

Hartzner’s message to borrowers was simple.

“Switch to a principal and interest loan. It’s cheaper.”

… As Does Westpac

All the major banks have removed foreign ATM fees. The ABA welcomed the move.

Statement from Anna Bligh, Australian Bankers’ Association Chief Executive:

“The ABA welcomes the announcement from the major banks today to abolish ATM fees.

“It’s a boon for customers and makes banking more affordable for everyday Australians.

“This is the latest in a suite of initiatives by banks to create better products and services for customers and boost customer choice, including reducing interest rates on credit cards and offering fee-free transaction accounts.

“A competitive banking system is good for customers and good for the sector.”

Westpac Cuts Fixed Mortgage Rates Too

From The Advisor.

As of Wednesday (20 September), Westpac’s two-year fixed rate for owner-occupiers paying principal and interest (P&I) dropped by 11 basis points to 4.08 per cent (standalone rate) or 5.16 per cent comparison.

For those with a Premier Advantage Package, the new rate is 3.88 per cent (4.88 per cent comparison) for two-year fixed terms.

 

At Bank of Melbourne, Bank SA and St. George Bank, the new standard two-year fixed rate for owner-occupiers on P&I is 14 basis points below its former level, at 4.00 per cent (5.14 per cent comparison).

The group clarified to brokers that customers will receive the new lower rate on applicable loans if they have already rate-locked their fixed rate, and if the rate locked in is higher than the new rate, on the date the loan settles (provided that there is no further fixed rate change).

If the rate locked in is lower than the new rate, then they will not be impacted by this change (i.e., they will get the rate they locked it at).

Westpac’s move to drop its two-year fixed rates follow on from similar moves from Suncorp, ANZ, CUA, and MyState Bank. Suncorp Bank recently said that the rate drop follows on from “recent reductions to fixed rate funding costs”.

Westpac facing ASIC loan assessment allegations

From Australian Broker.

Westpac’s usage of expenditure indexes to assess borrower suitability has come under fire by the Australian Securities & Investments Commission (ASIC) in its ongoing legal battle with the major bank.

The civil proceedings allege the bank failed to conduct proper assessments to ascertain whether borrowers could afford to repay their home loans. Westpac has denied this claim.

Court filings obtained by the Australian Financial Review put the spotlight on Westpac’s use of the University of Melbourne’s household expenditure measure (HEM) to determine borrower suitability.

In these documents, ASIC claims that the bank reliance on the HEM to assess borrowers led to approvals where a “proper assessment” based on actual spending would have unveiled a monthly financial shortfall.

ASIC said that the benchmark was based on “conservative” estimates of what a household would spend and “represents only an estimate of what Australian families consume”.

Furthermore, the regulator said that the HEM used “was not compiled by reference to expenditure data collected during the relevant period”. In other words, it claims Westpac used HEM benchmarks based on data from 2009 to 2010 when assessing borrowers for loans issued between December 2011 and March 2015.

Further allegations state Westpac only “scaled” the HEM to account for location, number of dependants and marital status when this could also have been extended to other factors, such as total household income, net wealth, savings patterns, and number of credit cards.

Westpac has said that the court action does not concern current lending policies or practices, reported the AFR.

The bank defended the HEM benchmark in its defence filing, saying it was an “objective measure that does not depend on the quality of a consumer’s estimation of their expenses … [and] excludes discretionary non-basic expenses that a consumer could reduce to meet their commitments without substantial hardship”.

In a statement released in March, Westpac Group chief executive of consumer bank George Frazis said that the bank had confidence in its lending standards and processes.

“It is not in the bank’s or customers’ interests to put people into loans that they cannot afford to repay. It goes hand in hand that we have robust credit approval processes while helping customers purchase their home,” he said.

“Our credit policies are informed by our deep experience and understanding of the mortgage market.”

Frazis said Westpac used “sophisticated systems” including the HEM to develop a broad analysis of customer expenditure.

“In our experience this survey is a useful input into our loan assessment process, in combination with our understanding of customers’ circumstances,” he said.

Westpac has denied claims that it relied solely on the HEM benchmark and that it failed to account for the customer’s declared expenses in its unsuitability assessment.

 

Westpac eases IO lending conditions

From Australian Broker.

Westpac has dropped its fixed rates on interest only loans while bringing in new introductory offers on a number of variable rate products.

The bank has decreased rates on its Fixed Rate Home and Investment Property Loans with IO repayments by as much as 30 basis points. This sets the new fixed rates for owner occupiers between 4.59% p.a. and 4.99% p.a. while rates for investors lie between 4.79% p.a. and 5.19% p.a.

“We regularly review our rates. We’ve been adjusting some over the past few months to remain competitive and ensure we meet our composition targets – i.e. the regulator’s 30% sector cap on IO loans,” a bank spokesperson told Australian Broker.

Rates for fixed rate interest only investor loans locked in for between six and 10 years remain unchanged.

Westpac has also brought in a two year introductory offer on its Flexi First Option Home and Investment Property Loan for new lenders. Refinancing and foreign lending is excluded.

Changes include an increased discount for the first two years of the Flexi First Option Home Loan for P&I payments and the introduction of a similar discount for Flexi First Option IO investor loans. After two years, the loan will roll over to the base rate:

2 year intro rate Discount Base rate
P&I owner-occupier 3.88% p.a. 0.71% p.a. 4.59% p.a.
P&I investor 4.18% p.a. 0.96% p.a. 5.14% p.a.
IO owner-occupier 5.18% p.a. None 5.18% p.a.
IO investor 4.88% p.a. 0.77% p.a. 5.65% p.a.

The bank has also removed its revert rate discount from all Flexi First Option Home Loans for owner occupiers and investors.

All changes came into effect on 30 August.

Westpac Q3 Update – Capital Strong, But Mortgage Risks Higher

Westpac released their Q3 Capital update today. The CET1 ratio was 10% at 30 June 2017, and equivalent to 15.3% on a comparable international basis.  This is higher than expected helped by strong dividend reinvestment.  They said they would provide further guidance on their preferred CET1 range (8.75%-9.25%) once APRA finalises its capital adequacy framework review.

The Net table funding ratio was 108% and the liquidity coverage ratio was 128%. The bank is well placed on these key ratios.

Stressed exposures TCE decreased by 4 basis points to 1.10%. Most sectors, including commercial property, mining and New Zealand dairy improved.

Unsecured delinquencies rose in the quarter, up 12 basis points to 1.75% mostly due to APRA hardship reporting changes. Changes in the reporting of hardship have had an impact on the level of reported delinquencies, with mortgage 90+ day up 16 basis points and unsecured consumer lending the change lifted 90+ day by 49 basis points. Cyclone Debbie caused a further rise.

30+ day delinquencies were at 138 basis points, compared with 139 in March, and 130 in Sept 16. 90+ delinquencies were 69 basis points, compared with 67 in March. The number of properties in possession rose from 382 to 422, mainly due to a rise in WA and QLD.  The WA trend is visible, thanks to weaker economic conditions.  Actual losses for the 9 months was a low $57 million.

Westpac provided further details of the changes in their mortgage book, thanks to the regulatory intervention on IO loans. IO loans are at least 50 basis points higher than the equivalent P&I loan. Investment loans are at least 47 basis points higher than the equivalent OO loan.

They have imposed a maximum LVR of 80% for all new IO loans (including limit increases, term extensions and switches. They are no longer accepting external refinances from other financial institutions for OO IO.  There are no fees to switch from IO to P&I.

The say the flow of IO lending was 44% in 3Q17, with applications 36% of flows (down from 52% and 47% in 2Q17). Despite seeing settlements above 30% IO, currently, they say they should be below 30% by 4Q17 – September 17.

The 30% IO cap incorporates all new IO loans, including bridging finance, construction loans, lines of credit as well as limit increases on existing loans. The IO cap excludes flows from switching between repayment types, such as IO to P&I or from P&I to IO and also excludes term extensions of IO terms within product maximums (5 years for IO OO and 10 years for investor loans).

They also described their mortgage warehouse, with Westpac providing funding for over 20 Australian mortgage originators (both ADI and non-ADI). The bank’s warehouse limits have been stable at around $10bn, but asset balances have been more variable.