Westpac says economic slowdown will be sharper

“We are preparing for a reduction in growth,” Mr King said Check out Australia’s finances. “At the moment, we have not seen the budget decrease. Rates should move from here, to slow down the economy and gradually rise. Time will tell us where they should be higher.. .

“The biggest challenge for the authorities is to contain the large price psychology that is currently taking hold in the economy.”

Meanwhile, the Reserve Bank’s high interest rates are depressing bank profits, with customers paying more for loans and getting less money for their deposits, giving Westpac confidence in the books its balance is strong enough to cover the wealth.

By reducing the ability to borrow and the impact of customers, the bank’s adjustment of interest rates will reduce housing prices by 16 percent from their peak at the end of next year.

Westpac is carrying provisions for credit losses of $4.6 billion, down from $5 billion at this time a year ago but 18 percent above pre-disease levels. Mr King said Christmas shopping was expected to be strong, and it would not be until the March to June quarter next year that the bank would calculate the impact of today’s rate hike.

It has not been fully passed on to consumers, especially those who receive loans.

Westpac is not only monitoring its lending customers for signs of trouble, but small businesses, particularly those exposed to cash flow, which the bank says will be the first sector of the economy to suffer influence. Already, 6.7 per cent of Westpac’s loans in the “accommodation, cafe and restaurant” sector have been classified as “stressed”.

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“Anything related to budgeting and small business focus [there] is where we are looking very closely,” Mr King said.

Rally driver

The RBA “had a very good balance of having to raise rates before seeing their impact, which is why they’ve gone back to increasing by 25. [basis points],” he said. “It is reasonable to think that things will slow down. The number that will matter most is unemployment, but 4.5 percent will return to the historical average. “

The prospect of higher interest rates pushing up bank interest rates has been a key factor behind the rally in share prices over the past few months, including Westpac’s, whose shares are up 10% on the month past.

But they fell by 4 percent on Monday, to $23.11 in early afternoon trading, despite strong market conditions, with investors questioning whether the gains from higher rates could be outweighed by low growth and high bad loans.

“The outlook is starting to look tough for both Westpac and the region more broadly, with volume growth expected to slow, with payments to continue to grow and the reliance on loans to start picking up ,” said Milford Asset Management portfolio manager Jason Kururangi.

Westpac’s full-year profit of $5.276 billion for the year to September 30, which was down 1 per cent, pointed to inflationary pressure on its own cost base. The bank was forced to abandon the goal of getting its total operating income to $8 billion by 2024, saying that this would be $8.6 billion now, but analysts expect that the cost will – high finish.

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“The key to how the stock performs today and in the near term will be the market’s interpretation of the bank’s new funding targets – and confidence around whether this can be achieved,” said UBS analyst John Storey.

The general cost fell by 7 percent for the year, but the higher goal affects administrative expenses, and an increase in employee wages. These will continue this year as the bank last week agreed to a 4 percent pay rise from January 1 for workers earning up to $94,000, and 3.5 percent for those earn between $94,000 and $118,000.

Mr King said the high wages were “just one example of the stress on the system”.

“High prices are having a big impact, as well as the war for talent, which is also driving up wages,” he said.

Westpac’s economists see rates rising at 3.85 per cent, higher than rivals the Commonwealth Bank and other economists, including AMP’s Shane Oliver, who said this weekend will have an extra 0.25 percent bonus next month to take. to 3.1 percent, which he considers to be a peak.

“Evidence is building on the RBA’s rate of action: housing indicators are weak; falling house prices will dampen demand and raise financial stability risks; consumer confidence has fallen again; and markets the sales people seem to be really stopping,” said Dr Oliver.

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Sam Garland, head of banking and capital markets at PwC Australia, said much of the impact of the rate hike was yet to come, as the expected rise was expected to increase and the impact was not low. of compensation. But the rules of the bank and the strong input should hold them in a good position to withstand the pressure.

“Without question, the combination of a focus on lending and capital standards in recent years, as well as homeowners building safety nets, puts banks as a whole in a difficult position to support customers. This includes interest-bearing deposits and assessments, capital levels and provisions from COVID and are raising the bar for this uncertainty,” Mr Garland said.

“Of course, it is inevitable that the rising cost of debt payments will cause anxiety for some customers. So, it is really a question of how strong the security is for people. have in place and their ability to organize. So far, there is little evidence of suffering – but it is early days.”

Westpac CFO Michael Roland said its strong capital position – equity capital ratio 1 (CET1) of 11.3 per cent – and lenders would enable Westpac to withstand whatever the economy throws at it.

“As in most cases when the overall picture is good, but the effect of high interest rates and low inflation will be insignificant, and we expect pressure to rise,” he said. investigators during an interview on Monday. “But whatever that means, we’re well-positioned to respond.”

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