Westpac Mulls Mortgage Rise as Profit Almost Triples

Westpac Banking Corp., Australia’s second-largest bank, said second-half profit almost tripled as it considers whether to raise borrowing costs by more than the central bank’s increase.

Net income climbed to A$3.47 billion ($3.46 billion) in the six months ended Sept. 30 from A$1.27 billion a year earlier as bad debts plunged, Westpac said in a statement to the stock exchange today. The median forecast of seven analysts Bloomberg surveyed was for profit of A$2.87 billion.

Surging earnings may increase pressure on the government to curb the power of Australia’s four biggest banks, which boosted market share during the global financial crisis by buying smaller rivals. Commonwealth Bank of Australia, the nation’s biggest home lender, yesterday raised its mortgage rate by almost double the central bank’s quarter-point increase, a move condemned by Treasurer Wayne Swan as a “cynical cash grab.”

The political pressure “is not a positive development” for banks, said Prasad Patkar, who helps manage about $1.8 billion at Platypus Asset Management in Sydney. Federal lawmakers “are upping the ante for political reasons and not economic reasons,” he said.

Westpac’s shares rose 0.5 percent to A$23.42 at 4:10 p.m. in Sydney, paring this year’s decline to 7.4 percent. The shares are the second-worst performers on the six-member S&P/ASX 200 banks index, which dropped 4 percent.


Second-half cash earnings, which exclude some tax charges, jumped 26 percent to A$2.93 billion from a year earlier, the bank said today.

Australia & New Zealand Banking Group Ltd., the country’s best-performing bank stock this year, last week said second-half profit jumped 69 percent to a record as bad debts declined and lending to home buyers increased. National Australia Bank Ltd., the biggest lender to companies, reported a 32 percent gain in cash profit as it expanded its share of the business loan market by targeting smaller borrowers.

Westpac Chief Executive Officer Gail Kelly, 54, joins rivals in reporting surging earnings amid criticism of Australian lenders, which face a Senate inquiry into competition, fees and funding costs, and opposition calls for improved regulation.

“The banks should not underestimate for one moment the determination of this government to put in place a range of reforms which will make the system more competitive,” Swan told reporters in Sydney today.

Bank Inquiry

The Senate voted last week to hold an inquiry that will include questioning of bank claims that they are compelled to raise interest rates by more than the central bank because of rising funding costs. Independent Senator Nick Xenophon, who called for the inquiry, said the nation’s four biggest banks should testify about the state of competition between them and non-bank lenders.

Westpac Chief Financial Officer Phil Coffey told reporters in Sydney today that the bank hasn’t yet decided how much it will raise its mortgage rates after the RBA’s unexpected quarter-percentage point increase yesterday, and said it will take a few days to consider the issue.

Mortgage rates are under review at ANZ Bank, according Sydney-based spokesman Kevin Foley. National Australia spokesman George Wright said yesterday that no decision had been made on interest rates after the RBA move.

Commonwealth Bank’s standard variable home loan interest rate will be increased by 45 basis points, or 0.45 percentage point, to 7.81 percent on Nov. 5, the Sydney-based bank said yesterday. The decision means Commonwealth Bank customers face an extra A$1,056 a year in costs on an average A$300,000 mortgage.

‘Cash Grab’

“This is a cynical cash grab,” Swan told reporters in Brisbane yesterday. “Australians deserve a lot better.”

Swan said today the government will announce next month reforms to make the banking system “more competitive” and put pressure on lenders “to behave in a better way.”

Bank borrowing costs are a political issue in Australia as more than 90 percent of borrowers have variable-rate home loans, and debate has intensified as the biggest lenders increased their share of the mortgage lending market during the financial crisis.

Commonwealth Bank bought Western Australia-focused lender BankWest from the U.K.’s HBOS Plc in 2008, the same year Westpac took over the fifth-biggest lender, St. George Bank Ltd.

Lenders have also benefited from government guarantees on deposits and debt sales, introduced by Swan at the height of the financial crisis following the collapse of Lehman Brothers Holdings Inc.

Opposition treasury spokesman Joe Hockey proposed last week a nine-point plan to increase regulation of the nation’s banks, and said “we must have a debate on whether we have lost adequate banking competition in Australia.”

Lessons from Chavez

“Not only have small players been squeezed but international banks operating in Australia have become far less active,” Hockey said.

ANZ Bank’s CEO Mike Smith told the Australian Broadcasting Corp. on Oct. 28 that it would appear Hockey has “been taking economics lessons from Hugo Chavez,” the president of Venezuela who has nationalized companies in the oil, food, cement and metals industries as part of his push for socialism since winning office in 1999.

Any attempt by Australian lawmakers to control banks’ interest rates will take the country back to an era “long since gone,” said Smith.

Australia’s largest banks lend more each year than they accept in deposit accounts at home. That forces them to turn to offshore markets for about 30 percent of their wholesale funding.

Funding Costs

According to Moody’s Investors Service, ANZ Bank and National Australia need to raise as much as A$25 billion each year selling long-term bonds to help fund lending. Commonwealth Bank and Westpac will need as much as A$50 billion, Moody’s has said.

Westpac’s second-half net interest margin, or the difference between what it earns from loans and pays to depositors, narrowed to 2.17 percent from 2.39 percent a year earlier. Provisions for credit impairments in the second half shrank to A$577 million from A$1.68 billion, the bank said.

The bank will pay a second-half dividend of 74 Australian cents, taking the full-year payout to A$1.39.

“Westpac certainly came through the crisis better than some others,” said Angus Gluskie, who manages about A$350 million at White Funds Management Pty. in Sydney. “Employment is strong and that’s the biggest driver of falling bad debts, and business conditions are slowly improving.”

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