Westpac’s decision to raise $3.5 billion in capital and increase its branded variable home loan rates by 20 basis points is “credit-positive”, according to Moody’s Investors Service.
The credit ratings agency said the bank’s capital raising better positions Westpac against the current backdrop of continued regulatory reform, but noted that its end-point capital needs remain unclear, with a possibility of greater-than-anticipated increases in regulatory capital requirements.
“Overall, while we think that capital accumulation by Westpac and its peer Australian major banks is likely to extend well into 2016, the need for further capital raisings has abated,” he said.
“The bank is now well positioned to meet any future increases in capital requirements through organic capital generation and, as needed, usage of its dividend reinvestment plans.”
Moody’s said the 20-basis-point increase in Westpac’s headline owner-occupier and investor rates will help it offset the negative impact of increasing capital on its return to equity.
“On the other hand, the potential for downward pressure on Westpac’s residential mortgage market share is a smaller counterweighing negative,” it said.
Moody’s also approves of Westpac’s decision to increase selected new term deposit rates by 25 basis points.
“Over the recent years, Australian banks, including Westpac, have shown strong growth of at-call deposits. We expect that over time they will look to rebalance their deposit portfolios toward term deposits, reflecting a regulatory focus on stickier funding sources,” it said.
“In addition, after some years of increases in the proportion of customer deposits in its total funding, in 2014-15, Westpac reported a moderate decrease from 60.2 per cent to 59.3 per cent. In this respect, it’s pricing change is a credit positive.”