Major bank run-off spikes as customers pay down debt

A major Australian lender has recorded a significant increase in its residential loan book run-off and below-system mortgage growth in its results for the first half of 2015.

From the first half of 2014 to the first half of 2015, Westpac’s housing loans increased $24.7 billion, or seven per cent.

While new lending volumes increased 12 per cent over the period, run-off increased seven per cent due to accelerated customer repayments, according to an ASX update.

Yesterday’s announcement of a $3.6 billion statutory net profit for the first half of 2015 included comment from Westpac CEO Brian Hartzer, who stressed the importance of a disciplined approach to credit growth.

Mr Hartzer said it was important that with intense competition in the mortgage, deposits and business lending markets, the group is disciplined in its approach to returns and growth as well as maintaining prudent risk settings.

“We grew at system in household deposits, and slightly below system in mortgages, while holding our margin (excluding Treasury and Markets) flat,” he said.

“We’ve managed the transition to the new liquidity coverage ratio framework well, with high levels of liquid assets and a well-diversified funding profile.”

Westpac also has a high-quality credit portfolio, with asset quality metrics continually improving, Mr Hartzer noted.

While he remains positive about the Australian outlook, he noted the economy is currently “in transition”.

“This means that we expect growth to be uneven across different industry sectors and geographies,” he said.

“Areas like housing, infrastructure, and agriculture will do relatively well, while other areas such as mining and resource-driven regions and adjacent service providers will find it tough.”

Mr Hartzer remarked that credit growth for Australian banks will be modest but positive with housing growing faster than business.

“This also means that banking competition will remain intense, including from new entrants,” he said.

“In this environment, and with considerable regulatory uncertainty, we will continue to run our businesses in a way that provides the headroom to manage volatility, while investing in our people and technology to build the value of the company.”

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