‘Aggressive’ competition stunts Westpac’s mortgage growth

However, the group’s portfolio growth was subdued when compared to the previous corrupting period, which saw it book rise by approximately $23 billion from $414 billion in 1H17.

Further, over the six months to 31 March 2019, Westpac settled $30.1 billion in home loans, down from $38.4 billion in the previous corresponding period.

According to Westpac CEO Brian Hartzer, weaker mortgage growth was partly attributable to enhanced competition in the mortgage market, with the chief executive also noting the continued weakness in demand for credit.

Mr Hartzer said that alternative finance providers were benefiting from the tighter regulatory conditions imposed on authorised deposit-taking institutions (ADIs).

“We’re seeing very aggressive growth in the home market from foreign banks and non-banks,” he said.

“There are a couple of interesting aspects here in terms of a level playing field, where the non-banks don’t have the same regulations applied to them as the ADIs do. 

“[Our] sense is that the regulators have focused initially on the big four banks, understandably because we’re a large part of the volume.”

Mr Hartzer continued: “[That has] led – based on the feedback we get from brokers and others – to some disconnects in terms of the process that’s being required by large banks versus the process that’s being required by smaller banks.”

However, the Westpac CEO said that he expects the perceived regulatory discrepancies to be “ironed out”, claiming that regulators “don’t like distortions in the market”.

Westpac’s 1H19 results also revealed that the group has continued to reduce its exposure to investment and interest-only borrowers, despite the lifting of the Australian Prudential Regulation Authority’s (APRA) caps.

The proportion of investment loans in Westpac’s mortgage book declined from 39.5 per cent to 39.1 per cent and made up 37 per cent of Westpac’s home loan flows over 1H19.

As at 31 March 2019, interest-only loans made up 30.6 per cent of its portfolio, down from 39.6 per cent in 1H18, and made up just 18.5 per cent of its mortgage flows in 1H19.

Additionally, Westpac reported that the share of home loans originated through its proprietary network remained relatively stable, falling from 56.5 per cent of its portfolio as at 31 March 2018 to 56.3 per cent.

Profits slump 24%

Westpac’s statutory net profit after tax (NPAT) fell sharply in 1H19, dropping by 24 per cent from $4.19 billion in 1H18 to $3.17 billion in 1H19.

Mr Hartzer said the underlying result was “disappointing” and reflected weakening business conditions, remediation costs and the revision of the group’s wealth strategy.

“The past six months has been a turning point for the bank,” Mr Hartzer said. “We are proactively addressing legacy issues while improving our products and services to ensure they deliver the right customer outcomes.”

He continued: “Despite the challenges of this transition period, we have managed our margins well this half while we navigate a very competitive, low-growth environment.”

The CEO added that cost saving within the proprietary network remains a “top priority” for the group, with a reported $146 million in savings delivered over the half, and a further cost-cutting underway to achieve target of $400 million in productivity savings over the full year.

“We have reduced full-time equivalent staff by 788 this half, and expenses excluding major remediation and restructuring items were down 3 per cent,” Mr Hartzer said.

The group CEO concluded by stating that the banks would continue its work to “win back customers’ trust” by improving complaints handling, removing all teller incentives, and introducing new digital initiatives designed to improve service efficiency.

 [Related: Macquarie CEO holds firm on broker support]