Switch to fix puts pressure on: Westpac

Customers’ move to fixed mortgage rates has kept the pressure on Westpac’s lending margins in the first half of 2014 but that is not likely to last forever, the bank’s chief executive says.

Monday, May 5th 2014, 3:58PM

by Susan Edmunds

Peter Clare announced the bank’s first-half results today. It was the eighth consecutive half-year period in which the bank had reported cash earnings growth.

The bank’s cash earnings were up 17% on the same half last year, to $432 million. Its lending earnings were up 6% to $63.2 billion but its net interest margin was down six basis points to 2.28%.

Clare said the market was clearly expecting more increases in the official cash rate. More customers are moving to fixed rates, predominantly between one and three years, which have less of a margin for the bank than floating rates.

But Clare said margins would open and close depending on the broader market conditions as well as customer preferences.

Fourteen per cent of mortgage applications over the past year were through digital channels and nearly half of those customers were new to the bank.

Westpac has increased its numbers of mobile mortgage managers by 60% compared to the first half of 2013.

The bank’s chief financial officer, Leigh Bartlett, said it had successfully navigated the transition to the new LVR restrictions, reducing its share of over-80% mortgage lending from 21.3% of its loan book in the first half of 2013 to 19.2% in the first half of this year. At the same time housing delinquencies had fallen away.

The bank’s housing loan book grew by $1.078 billion or 5.8% over the year but that was fully funded by customer deposits.

The wealth side of the business is also growing substantially.

The bank’s funds under management increased by $1 billion, or 19%, compared to the first half of 2013.

Clare said the bank had very good success with KiwiSaver and explaining to customers the benefits of being involved, even before it acquired default status. He said Westpac had not set out to market KiwiSaver heavily to customers but would explain the system and leave it to the customer to pursue.

“Now we are a default we would expect further growth because we will be getting a share of customers we would previously not have had access to.”

Some would experience the platform and advice Westpac offered to KiwiSaver customers and decide to move all their banking across, he said, but he did not expect it to be a big driver of further business.

Westpac wants to be a one-stop shop for its customers, and offer everything from home loans to insurance, KiwiSaver to personal loans.

More than half the bank’s customers are now active online users and online origination, fulfilment and service is up 21% over the past 12 months.

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