Westpac braces for economic slowdown as rate hikes bite

Westpac boss Peter King has warned of slower economic growth amid cost of living pressures and higher interest rates as the bank looks to turn its fortunes around following what the chair termed a difficult and turbulent time for the company.

At the bank’s annual general meeting on Thursday, Westpac chair John McFarlane said the company had weathered “some years of erosion” in its market position but that it had since stabilised.

“I am conscious the past few years have taken their toll on our share value, which I regret,” he said. “We have seen the worst, but still require further improvement.”

McFarlane said Westpac remained operationally and technologically complex compared to peers following several historical acquisitions that were not fully integrated, but that he was confident the best was yet to come for the bank despite near-term uncertainties on the economic front.

King said Australia was navigating a challenging economic environment after bouncing back strongly from the pandemic and that the level of hardship in the economy would depend on unemployment levels.

“The recovery in activity and high inflation have driven up interest rates,” he said, adding Westpac bank was ready to navigate slower economic growth, revenue headwinds and higher costs. “If unemployment increases, it’ll get tougher.”

King said it had been a difficult year for many people, with some customers needing the bank’s help to manage cost of living pressures. “At the end of our 2023 financial year, 13,000 customers were in hardship,” he said.

Credit card stress had unexpectedly dropped in the past six months, King said, but mortgage stress and business stress levels had increased. While delinquency levels were at historically low levels, King said the mortgage portfolio was where most of the stress was concentrated.

While banks have broadly pared back growth in home loans amid intense competition, Westpac grew new loans by 5 per cent in the 2023 financial year to $486 billion, which was a 1.2 times increase over “system”, or the average of other lenders.