Westpac sees $17.5bn of mortgages reclassified

Owner-occupied home loans grew 15 per cent to now comprise 54 per cent of the portfolio, while its investment property loans reduced 8 per cent to now comprise 40 per cent.

“Following the introduction of differential pricing between mortgage products, there were $17.5 billion of net switching from investment property loans to owner-occupied during the first half of 2016,” the bank said in a trading update.

Westpac CEO Brian Hartzer said the group had delivered a sound result in a volatile economic environment with significant regulatory change.

“The consumer bank delivered strong home loan and deposit growth and well-managed margins,” Mr Hartzer said, adding that Westpac’s business bank also recorded sound balance sheet growth, particularly in SME, with margins stable over the period.

However, he noted that sector headwinds contributed to a softer performance in other divisions.

“In particular, Westpac Institutional Bank (WIB) was affected by lower net interest margins and significantly higher impairment charges related principally to four large exposures which added $252 million to provisions,” Mr Hartzer said.

In response to regulatory change, Westpac raised around $6 billion in equity over the 2015 calendar year, lifting the group’s common equity Tier 1 ratio to 10.5 per cent, or around 2 percentage points higher than a year earlier.

“These actions have materially strengthened the group’s capital base but have impacted earnings per share and return on equity,” Mr Hartzer said.

“Importantly, on most measures, overall asset quality remains sound, with the level of stressed assets little changed over the half.

“There have been a few pockets of stress, mostly related to lower commodity prices, and an increase in provisions for a small number of larger exposures, which contributed to a rise in impairment charges.”

[Related: Brokers react to Westpac's shock lending decision]