Westpac has delivered a riposte to criticism of its mortgage underwriting standards with a “fundamentally sound” loan book that helped lift first-half profit nearly six per cent.
Documents released by the banking royal commission, including a PwC assessment, had raised questions over Westpac’s checks on home loan applicants, but the bank on Monday said asset quality remained sound as cash profit for the six months to March 31 rose 5.8 per cent to $4.25 billion.
Westpac said just 398 houses were in its possession from a total 1.6 million loans, and that Australian mortgage repayments 90 days or more overdue had risen just 0.02 percentage points over the past six months to represent 0.69 per cent of loans.
Charges for impaired loans dropped by $100 million a year ago to $393 million.
Westpac on Monday called its credit portfolio “fundamentally sound” and chief executive Brian Hartzer said almost 70 per cent of customers were ahead on repayments.
“While the housing market is expected to continue to cool, this dynamic means that opportunities are opening up for first home buyers, who are beginning to step up in place of investors,” Mr Hartzer said.
The proportion of interest-only loans in Westpac’s $413.9 billion Australian mortgage book fell to 39.6 per cent from 50.1 per cent a year earlier, while investor lending remained steady at 39.5 per cent.
Fixed-rate loans rose from 18 per cent of the book to 23 per cent over the same period.
Referring to the report by advisory firm PwC, Westpac chief financial officer Peter King said the assessor had not been in possession of all the facts when it suggested almost a third of 420 sample Westpac mortgages had not been checked for proof of borrower income.
“They did not look at the information that was available to the banker when they made their decision,” Mr King said.
“There was a loan where the banker had received a previous application very close to it – they verified the income here – and it wasn’t on the new loan application, so PWC failed it absolutely.”
PwC’s report was among factors cited by UBS in a damaging report that sent Westpac’s share price, and the broader banking sector, lower in late April.
Consumer banking – the unit including mortgages – lifted its cash profit 12 per cent to $1.72 billion.
Australian mortgage lending was up 5.6 per cent on the same time a year earlier and net interest margin (NIM) – a key measure of profitability – rose 0.07 percentage points over the half and by 0.10 percentage points over the year.
Higher rates for interest-only and investor mortgages were the biggest driver of the improved NIM.
The federal government’s bank levy trimmed 0.05 percentage points off the NIM, while the banking royal commission added $34 million in extra costs.
Westpac shares, which had already recovered from the panic sell that followed analysis of the royal commission documents, rose as much as 2.4 per cent on the result.
At 1540 AEST, they were still 21 cents, or 0.7 per cent, at $29.31.
WESTPAC’S FIRST HALF
* Cash profit up 5.8pct to $4.251b
* Net profit up 7.4pct to $4.198b
* Operating income up 3.6pct to $11.15b
* Interim dividend flat at 94 cents, fully franked