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‘Clunky’ HEM tool slashed broker volumes: Westpac

by Charbel Kadib12 minute read

The major bank has conceded that the introduction of an unpopular expense verification tool contributed to a sharp decline in its home lending volumes.

Westpac Group has released its full-year results for the 2019 financial year (FY19), recording a statutory net profit after tax of $6.7 billion, down 16 per cent on FY18.

The group’s headline result was driven by a 1 per cent decline in net interest income ($16.9 billion) and a 15 per cent slide in non-interest income ($3.7 billion), compounded by a 3 per cent increase in total expenses ($10 billion).

Subdued activity in the mortgage market also contributed to the group's weak underlying performance - with Westpac’s home loan volumes falling by $14.7 billion (19.5 per cent), from $75.3 billion in FY18 to $60.6 billion in FY19.    


As a result, the bank reported a modest increase in its mortgage portfolio, which grew by approximately $4.5 billion, from $444.7 billion in FY18 to $449.2 billion.

Speaking to the media following the release of Westpac’s results, CEO Brian Hartzer partly attributed the bank’s subdued volumes to changes in the regulatory environment, which he said prompted the bank to adopt a conservative approach to home lending.

“Some of what's happened has been deliberate, in that in a period of low growth, [we] decided to prioritise margin and accepted that growth will be a bit lower,” Mr Hartzer said.

“That's a sensible thing to do from time to time.”

However, the chief executive conceded that some of the drop-off in volumes was “self-inflicted” and came in response to “clunky” credit processes adopted by the lender.

Mr Hartzer made specific reference to an expense categorisation tool introduced by Westpac in FY19, which he said was not received well by the broker channel.

“There was a tool put out to brokers in particular around how we needed to collect [expenses] data,” he said.

“The tool was frankly pretty clunky, so we've gone back and re-worked that. It’s a better experience now and we're seeing applications rise.”

The chief executive denied that implementation of the tool — which included a greater number of expense categories as part of the household expenditure measure (HEM) assessment — was “rushed”.  

“I wouldn't describe it as rushed out; I would just say that we should have done a better job of thinking through how that was going to land for our broker partners in particular,” Mr Hartzer added.

“The crux of what this was about was the new expense tables involved more categories of expenses that we need to collect, so there was a change in the processes, and we just made that a bit harder than it needed to be. 

“We don't get it right all the time, but we got onto it pretty quickly and we think we've fixed that now.”  

Mr Hartzer added that the bank expects to return to system mortgage growth in approximately 12 months. When asked why it would take the bank a year to improve its volumes, the CEO pointed to a “lag” between applicant volume and settlements.

“We think we're on the right path but there'll be a lag before we can get back at growing at system,” he said.

Portfolio mix

Westpac continued to reduce its exposure to investment home loans over FY19, with the share of investment loans as a proportion of its overall portfolio falling from 39.1 per cent to 38.5 per cent.

The share of interest-only loans also dropped as a proportion of Westpac’s total mortgage book, falling from 34.8 per cent to 26.9 per cent.

The bank's reduced risk appetite was also reflected in a decline in the share of loans with mortgage insurance, from 16.3 per cent as at the close of FY18 to 15.6 per cent. 

However, over 30-day arrears rose from 1.4 per cent to 1.61 per cent, while over 90-day arrears increased from 0.72 per cent to 0.88 per cent. 

Fewer loans in Westpac’s mortgage portfolio were originated via the proprietary channel, down from 56.1 per cent to 55.7 per cent.

Westpac Group’s share of the Australian mortgage market remained stable at 23 per cent.

[Related: ANZ CEO weighs in on broker rem reforms]

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Charbel Kadib


Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: [email protected]