Westpac flags rates impact in 2023

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Australia’s second biggest lender has cautioned about a tougher period for consumers in 2023 as they feel the full impact of interest rate hikes and the continuing high cost of living.

Westpac chief executive Peter King on Wednesday told shareholders the lender is “carefully watching” the impacts of higher interest rates on customers despite credit metrics having shown an improvement so far this year.

“We expect the combination of rising interest rates and the increase in cost of living to be felt more fully by consumers and businesses after Christmas,” Mr King said at the company’s annual general meeting in Melbourne.

The comments come a week after the Reserve Bank of Australia raised its benchmark cash rate for the eighth month in a row, to 3.1 per cent, in its battle to control high inflation.

Mortgage holders have been the worst affected, with all major banks including Westpac passing on the rate increases in full, raising fears of a spike in defaults next year as borrowers face higher repayments along with increased living costs.

“There is no doubt that tighter monetary policy and slowing economic growth will impact some customers in the year ahead. We are prepared for this cycle given the quality of the loan portfolio and the strength of our balance sheet and provisioning.”

Westpac last month posted a better-than-expected full year profit of $5.7 billion, a four per cent improvement over the previous year.

The lender said at the time it was yet to see an increase in hardship, with many customers having built up savings during the past two years and nearly two-thirds ahead on their mortgage repayments.

By 1400 AEDT, Westpac shares were down one per cent to $23.43 each in a firm Australian market.

In a significant development, chairman John McFarlane on Wednesday told shareholders he will retire from Westpac’s board at the end of the 2023 annual general meeting in December next year.

He said Westpac had become a leaner, more agile and better performing company since he took on the role in 2020, citing progress in turning around the bank since it was embroiled in breaches of anti-money laundering laws.

It was ultimately settled in September 2020 after Westpac agreed to pay a record $1.3 billion penalty to financial crimes regulator AUSTRAC.

Westpac also avoided a second strike against its remuneration report that could have forced a spill of its board, with more than 75 per cent of shareholders voting in favour. Last year, more than 30 per cent of votes were cast against the adoption of its remuneration report.

These developments were, however, overshadowed by protests from climate activists who repeatedly disrupted the address by Mr McFarlane and Mr King. Some attendees were asked to leave, with the meeting paused for several minutes.

Climate activists had sought changes to Westpac’s constitution to allow investors a vote on a resolution regarding climate risk safeguarding, but only about 10 per cent votes were cast in favour of this. The bank urged shareholders to vote against the resolution.

“Westpac’s claim to support the climate goals of Paris Agreement and net zero emissions by 2050 while continuing to finance huge fossil fuel expansion plans of companies like Whitehaven Coal, Santos and Woodside is becoming a sick joke,” advocacy group Market Forces said in a statement.

Westpac’s board also faced repeated questions on the lender’s policies to tackle nature-related risks such as deforestation.

Mr King told shareholders the bank currently only considers these risks in agricultural loans on a case-by-case basis, but is working on developing a consistent policy for all nature-related risks.

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