Westpac reports 42% drop in mortgage deferrals

Westpac Group has published its third quarter trading update (3Q20), reporting that approximately 135,000 home loan customers paused repayments in response to the COVID-19 crisis – equating to approximately $51 billion in loans across its portfolio.

However, the big four bank has revealed that after conducting a three-month check-in on approximately 85 per cent of deferral customers, 42 per cent elected to resume repayments.

This has reduced the total number of customers on repayment holidays to 78,000 ($30 billion) – representing 7 per cent of Westpac’s total mortgage portfolio.

In comparison, only 16 per cent of NAB’s customers exited deferral arrangements following the three-month check-in.

Deferral breakdown

Westpac’s trading update also revealed that the vast majority of mortgage deferral customers are owner-occupiers (63 per cent) and those paying principle and interest (78 per cent).

The loan-to-value ratio on deferred loans is an average of 68 per cent, with just 20 per cent more than three months ahead on their repayments.

Borrowers in NSW represent the largest share (40 per cent) of the 78,000 outstanding mortgage deferrals entered into since the onset of the pandemic, followed by Victoria (30 per cent), Queensland (14 per cent) and Western Australia (8 per cent).

The remaining states and territories represent 7 per cent of the total share.

3Q20 result

Westpac has reported unaudited cash earnings over 3Q20 of $1.3 billion, up 19 per cent from the 1H20 quarterly average $497 million, which was impacted by a spike in credit provisions.

The major bank’s expected credit loss provisions increased by $574 million over 3Q20, taking total provisions as a proportion of credit risk-weighted assets to 170 bps, up from 157 bps.

Reflecting on the result, Westpac Group CEO Peter King said the bank continues to focus on strengthening its resilience to the economic fallout from the COVID-19 pandemic.

“Westpac’s priority has been to remain strong so we can continue supporting customers through this challenging period,” he said.

“We have maintained our strong balance sheet and increased provisions for bad debts to support our prudent approach to managing impairments.

“Our third quarter 2020 result, excluding notables, is higher than first half average, mostly due to lower impairment charges. Nevertheless, the impact of the COVID-19 pandemic is clear as activity fell and margins declined.”

Mr King said he expects the bank to continue facing headwinds in the months ahead amid ongoing “significant uncertainty” over the duration of the crisis.

“While the domestic and global outlook remains highly uncertain, Westpac continues to be well positioned to support our customers,” he concluded.

[Related: Lending growth brightens Bendigo result]