...WBC contracting 3% ‘Inevitable’: Westpac warns of hit from...

...WBC contracting 3%

‘Inevitable’: Westpac warns of hit from rates, property prices
Ayesha de Kretser and James Eyers
Nov 7, 2022 – 8.08am


Westpac’s earnings and cash profit fell due to a $1.1 billion loss on the sale of its life insurance arm and chief executive Peter King said the bank was watching for pressures on businesses as consumer spending slows in coming months.

The bank lifted its final dividend by 4¢ to 64¢ per share, after booking a cash profit of $5.276 billion for the year to September 30, which was down 1 per cent, in line with expectations. Its full-year dividend of $1.25 a share was 6 per cent higher.
Mr King warned the economy was likely to feel the pinch from lower house prices and inflation controlling measures.

He declared it “inevitable” that households would be hit by higher rates, including when billions of dollars of ultra-low, fixed rate mortgages reset onto much higher rates next year.

“Most key credit metrics improved over the half, including a reduction in stressed assets and delinquencies,” Mr King said.

“However, it’s important to acknowledge the challenges ahead as customers navigate the tougher environment.”

The cash rate could peak at between 3.5 per cent and 4 per cent next year, before it begins to fall in 2024 if the Reserve Bank gets inflation under control, he said.

That would mean three or four additional 0.25 per cent hikes following seven straight months of increases including last week’s, adding to pressures in housing markets.

“Housing prices have fallen in recent months and this will continue into 2023. Credit growth is expected to ease. GDP growth will slow and unemployment will rise,” he said.

“These will be necessary outcomes if we are to lower inflation.”

Higher costs, including from wages, has forced Westpac to drop a target to get to $8 billion in total annual costs by 2024: this will now be $600 million higher.

The bearish commentary comes after ANZ said it was confident the bulk of stress doesn’t sit on bank balance sheets, after it reported a strong result in early November that led some analysts to upgrade forecasts.