Major bank’s grim warning for homeowners

The chief executive of one of Australia’s biggest banks has delivered a fresh warning to homeowners, warning interest rates will likely stay “higher for longer” as the Reserve Bank navigates sticky inflation and rising geopolitical uncertainty.

“We believe the economy is on track for a soft landing and, if this happens, this will be good news for many Australians,” he said.

“However, this scenario is not certain.

“While inflation has fallen, getting it down to target range is proving difficult globally and here in Australia.

“It is likely interest rates will stay higher for longer.”

A soft landing refers to the outcome where central banks raise interest rates to tame inflation without tipping economies into recession.

Australia and the US have so far managed to maintain growth in spite of sharp rate hikes from the Federal Reserve and Reserve Bank of Australia, but the inflation control measures have hit Australians hard.

Mr King said the bank had recorded an “uptick” in stress on its loan books as Australians struggled through higher interest rates and cost-of-living pressures.

Major bank’s grim warning for homeowners

“More customers are calling us for assistance and we’re helping those who need it,” he said.

In its mortgage portfolio, the bank has recorded a steady rise in 30-day plus delinquencies from March 2023 to March this year, moving from 139 basis points to 181.

The bank’s “customers in hardship” measure has doubled from 50 basis points to 105.

The banking giant recorded a 16 per cent slide in half-year profits to $3.34bn, with Mr King warning of a “slowing economy and competitive banking sector”.

The $91bn behemoth reported its results for the six months to December 31, 2023, with the bank delivering a special dividend of 15c a share fully franked and a $1bn lift in its share buyback program to $2.5bn.

The $3.34bn profit figure marks a 16 per cent fall from the corresponding period in the 2023 financial year but a five per cent rise from the immediate six months prior.

Net interest margin, a key measure of bank profitability, was 1.89 per cent, a fall of five basis points from the prior period.

NIM, expressed as a percentage, calculates the difference between what a bank earns from lending out money from what it pays out in deposits.

The bank earned revenues of $10.81bn for the six months, a 1 per cent decline from the first half of FY23.

Mr King said the bank had “managed growth and margins in a disciplined way amid a slowing economy and competitive banking sector” throughout the half year.

“We grew our major Australian segments in a disciplined way with mortgages and deposits up five per cent and business lending up nine per cent over the year.

“The impact of competition on mortgage margins moderated this half.”

The bank had $650.9bn in total deposits, a four per cent increase from the first half of FY23, and $784.8bn in total loans, a five per cent increase.

Mr King delivered a positive view of Australia’s immediate economic outlook.

“Overall, the Australian economy is proving resilient,” he said.

“While economic growth has slowed, unemployment remains low by historical measures.

But he warned of “potential challenges” to the global economy.

“We are closely watching the ongoing economic risk from geopolitical conflict and uncertainty playing out in the Middle East and Europe.

“Despite the uncertain economic outlook, I remain of the view that Australia is one of the better places to be.”

Westpac is the second of the big four banks to report half year results in May.

Last week, NAB reported a 12 per cent fall in profits to $3.49bn.