Westpac Q3 Update – Capital Strong, But Mortgage Risks Higher

Westpac released their Q3 Capital update today. The CET1 ratio was 10% at 30 June 2017, and equivalent to 15.3% on a comparable international basis.  This is higher than expected helped by strong dividend reinvestment.  They said they would provide further guidance on their preferred CET1 range (8.75%-9.25%) once APRA finalises its capital adequacy framework review.

The Net table funding ratio was 108% and the liquidity coverage ratio was 128%. The bank is well placed on these key ratios.

Stressed exposures TCE decreased by 4 basis points to 1.10%. Most sectors, including commercial property, mining and New Zealand dairy improved.

Unsecured delinquencies rose in the quarter, up 12 basis points to 1.75% mostly due to APRA hardship reporting changes. Changes in the reporting of hardship have had an impact on the level of reported delinquencies, with mortgage 90+ day up 16 basis points and unsecured consumer lending the change lifted 90+ day by 49 basis points. Cyclone Debbie caused a further rise.

30+ day delinquencies were at 138 basis points, compared with 139 in March, and 130 in Sept 16. 90+ delinquencies were 69 basis points, compared with 67 in March. The number of properties in possession rose from 382 to 422, mainly due to a rise in WA and QLD.  The WA trend is visible, thanks to weaker economic conditions.  Actual losses for the 9 months was a low $57 million.

Westpac provided further details of the changes in their mortgage book, thanks to the regulatory intervention on IO loans. IO loans are at least 50 basis points higher than the equivalent P&I loan. Investment loans are at least 47 basis points higher than the equivalent OO loan.

They have imposed a maximum LVR of 80% for all new IO loans (including limit increases, term extensions and switches. They are no longer accepting external refinances from other financial institutions for OO IO.  There are no fees to switch from IO to P&I.

The say the flow of IO lending was 44% in 3Q17, with applications 36% of flows (down from 52% and 47% in 2Q17). Despite seeing settlements above 30% IO, currently, they say they should be below 30% by 4Q17 – September 17.

The 30% IO cap incorporates all new IO loans, including bridging finance, construction loans, lines of credit as well as limit increases on existing loans. The IO cap excludes flows from switching between repayment types, such as IO to P&I or from P&I to IO and also excludes term extensions of IO terms within product maximums (5 years for IO OO and 10 years for investor loans).

They also described their mortgage warehouse, with Westpac providing funding for over 20 Australian mortgage originators (both ADI and non-ADI). The bank’s warehouse limits have been stable at around $10bn, but asset balances have been more variable.



zipMoney and Westpac Enter Strategic Relationship

In an announcement today, zipMoney has secured a $40m strategic investment from Westpac at $0.81 per share (a 14.1% premium to the last closing price).

The purpose of the investment is to allow Westpac to explore the rollout of Zip’s products and services across Westpac’s payment network.

The deal is expected to close on on 10th August 2017.

zipMoney is an ASX-listed company, which offers point-of-sale credit and digital payment services to the retail, education, health and travel industries. Zip’s platform is entirely digital and leverages big data in its proprietary fraud and credit decisioning technologies to deliver real-time consumer responses.

They provide a variety of integrated Retail Finance solutions to small, medium and enterprise businesses across numerous industries, both online and in-store.

zipMoney offers a 100% cloud-based platform that leverages its proprietary technology and Big Data to enhance the proven fundamentals of promotional finance, in particular interest-free.

zipMoney is focussed on acquiring prime, near prime and emerging prime borrowers by providing those customers with a revolving line of credit to finance their retail purchase. zipMoney does not target sub-prime or payday borrowers. zipMoney is acutely focused on simplicity and delivering transparent, responsible, and fairly priced consumer credit products.

zipMoney is a licensed and regulated credit provider managed by a team with over 35 years’ experience in providing finance solutions at point of sale.


Westpac Tweaks Mortgage Rates Again

Westpac has introduced changes to its fixed rates, effective 1 August 2017.

Owner-occupied fixed principal and interest (P&I) rates will see a hike of 11 basis points for two-year terms, bringing the rate to 4.19 per cent per annum (p.a.). Three-year terms will conversely see falls of 10 basis points to 4.19 per cent, while both four- and five-year terms will see rates fall by 20 basis points to 4.39 per cent.

Owner-occupied fixed interest-only (IO) rates in one -and two-year terms will see a hike of 13 basis points to 4.79 per cent, while three-year terms will also grow 13 basis points to 4.89 per cent. Four- and five-year terms will increase by 0.13 per cent to 5.19 per cent.

Investor fixed P&I rates with two-year terms will grow by 31 basis points to 4.39 per cent, while three-year terms will see a fall of 5 basis points to 4.44 per cent. Five- and six-year terms will both fall 10 basis points to 4.69 per cent.

Investor fixed IO rates with one- to five-year terms will all see hikes. One and two-year terms will grow 13 basis points to 4.99 per cent, while three-year terms will also increase by 13 basis points to 5.09 per cent. Four- and five-year terms will see rate increases of 23 basis points to 5.49 per cent.

Westpac Tightens Mortgage Underwriting Some More

From The AFR.

Westpac, the nation’s second largest mortgage lender, is ditching mortgage and equity-release products in a high-level review of its product range and underwriting standards.

The top-down review is expected to reassess dozens of loans and lending packages, which include credit and insurance products, as the bank and its subsidiaries adjust lending criteria to changing market conditions.

It is being undertaken as major big four competitors continue to tighten lending for interest-only loans, increase mandatory deposits for home loans and tighten access to credit-related products.

It also comes as new independent research backs prudential regulators’ fears about potential bottom line, long-term risks to borrowers being created by soaring property values and static incomes needed to repay inflated loans.

“Westpac is currently review our suite of home loans,” the bank is telling mortgage brokers in a confidential memo. It claims the bank needs to “simplify systems and processes to achieve productivity in the way we operate”.

It confirms suspicions the bank was undergoing an extensive cull following the recent withdrawal of equity-release products offered to older property owners, such as Seniors Access and Seniors Access Plus, which are both lines of credit secured against the borrowers’ property.

The latest products to be dumped include equity access low documentation loans, which is a revolving line of credit secured against property; and a range of fixed rate low documentation home loan.

A low documentation loan is aimed at those who cannot provide the usual required paperwork to the lender, such as tax returns and financial statements. They are popular with self employed or those relying irregular bonus payments.

Review recommendations are expected to flow onto Bank of Melbourne, St George Bank and BankSA.

New independent analysis reveals that lenders need to review their underwriting standards because of record levels of household debt, static incomes and unprecedented borrowing needed to buy houses in Melbourne and Sydney, the nation’s property hotspots.

Lenders are also juggling the need to continue mortgage lending, one of their most profitable businesses, with strict prudential criteria on the speed and size of lending to higher risk interest-only lenders.

One-in-10 borrowers would fail underwriting standards for owner occupation and two-thirds for investment purposes if recent borrowing criteria was applied to new loans, according to analysis by Digital Finance Analytics (DFA).

The majority of failing loans would be for between $500,000 to $700,000, predominantly in NSW and Victoria.

Martin North, DFA principal, expects lending criteria to continue tightening, which means more existing loans will fall outside current underwriting standards.

“Our industry contacts suggest that many lenders are reviewing their spending assessment, and that more details and granular information is now being used (to assess borrowers). But this might not help those who got bigger loans in easier conditions as affordability bites.”

This also helps to explain why traditionally wealthier postcodes are beginning to appear amongst those with financially distressed households.

“There is still lending momentum,” said Mr North. “Nothing that is being done will change the momentum because banks are happy to lend. The lending mix will be different,” he said.

Lenders are dumping prospective higher risk interest-only borrowers for principal and interest. Many are offering interest-only borrowers incentives to switch across to lower risk alternatives, or repeatedly increasing interest-only interest rates to force a switch.

Westpac recently announced it was preventing existing borrowers from switching into lower cost loans and was raising popular interest-only lending rates by 34 basis points and hit property investors using self managed super funds with higher rates, tougher policies and processes. 

Other major lenders, including Commonwealth Bank of Australia, the nation’s biggest mortgage and credit card provider, are cracking down on issuing credit cards to property borrowers.

AMP, the nation’s largest financial services group, is also tightening popular lending and credit products.

Successful blockchain trial for bank guarantees

ANZ and Westpac have teamed with IBM and shopping centre operator Scentre Group and have now successfully digitised the bank guarantee process used for commercial property leasing.

The trial used Distributed Ledger Technology (DLT) to eliminate the need for current paper-based bank guarantee documents, resulting in a single source of information with reduced potential for fraud and increased efficiency.

The partners involved in the trial have today released a whitepaper detailing how the solution worked and how it could be used in other situations that rely on bank guarantees.

In addition to eliminating the need for physical document management, the trial also addressed other inefficiencies in the current bank guarantee process, including the challenges in tracking and reporting of a guarantee’s status through multiple changes.

This forms part of a broader plan to build a shared solution with the rest of the industry, and to invite other organisations to participate in a larger pilot.

Commenting on the successful trial, Mark Bloom, Chief Financial Officer at Scentre Group, said: “An update of the decades-old process for issuing, tracking and claiming on guarantees is long overdue.

“With approximately 11,500 retailers across Australia and New Zealand, who use guarantees to support rental obligations, manual tracking of guarantees has been an extremely cumbersome and labour intensive process.”

Nigel Dobson, General Manager Wholesale Digital, Digital Banking at ANZ, said: “We have been keen to avoid the hype surrounding blockchain and distributed ledger technologies, and instead focused on practical and deliverable use cases.

“This proof of concept demonstrates how we can collaborate with our partners to develop a digital solution for customers, which also has the potential for industry-wide adoption.”

Andrew McDonald, General Manager Corporate and Institutional Banking at Westpac, said: “This is about removing the cost of fraud, error and operational risk that will continue as long as bank guarantees remain paper-based and manually issued.

“Next steps involve encouraging all industry players to adopt this technology so we can better protect and save money for our customers. Beyond that there is no reason why this couldn’t be applied across other industries.”

Dr. Joanna Batstone, Vice President and Lab Director of IBM Research Australia, said: “Using an agile approach, IBM collaborated with ANZ to combine the bank’s deep knowledge of the industry and their partners, with IBM’s blockchain expertise.

“The business use case demonstrates the opportunity to lift efficiency and transparency for all parties involved. We believe blockchain can potentially drive productivity across all Australian industries.”

This blockchain trial used Distributed Ledger Technology (DLT) powered by Hyperledger Fabric V1.0 – a blockchain framework and one of the Hyperledger projects hosted by The Linux Foundation. You can view the whitepaper.

Westpac Ups IO Mortgage Rates

Westpac has lifted interest only mortgage rates by 34 basis points, whilst cutting principle and an interest rates by 8 basis points, effective 30 June. The bank says this has nothing to do with the Bank Tax which passed the Senate yesterday.

Effective on 30 June 2017, Westpac will reduce its variable rate interest rates for customers paying principal and interest on their owner occupier home loans by 8 basis points to 5.24% per annum (comparison rate 5.38% per annum*).

Westpac will also adjust interest only rates for variable home loans as follows:

  • Owner occupier interest only rate will increase by 34 basis points to 5.83% per annum (comparison rate 5.97% per annum*)
  • Residential investment interest only rate will increase by 34 basis points to 6.30% per annum (comparison rate 6.43% per annum*)


George Frazis, chief executive of Westpac Consumer Bank, said this is good news for owner-occupier customers who make principal and interest repayments as they will benefit from lower interest rates allowing them to pay off their loans faster.

“We hope the rate reduction will encourage owner-occupier customers with interest-only home loans to switch to principal and interest repayments, helping them to pay down their home loan in this low interest rate environment. There will be no switching fee,” he said.

“We understand the significance of interest rate changes to our home loan customers, so we try to balance the needs of both owner-occupiers and investors in making these decisions.

“APRA’s limit on new interest only lending is 30 per cent of new residential mortgage lending, so we have to continue to make changes to our interest-only rates and lending policies to meet this benchmark.


NAB Ventures backs Sydney start-up, Basiq

Basiq, a start-up that provides Australia’s first open banking API platform, has gained investments from NAB Ventures and Reinventure in a seed funding round.

Based in Sydney, Basiq’s core platform enables fintech companies to securely acquire authorised financial data on behalf of their customers. This enables fintechs to develop innovative solutions for their customers around things like personal finance management, wealth management and income verification.

Basiq launched in early 2017 and is unique in the Australian market with a product that provides easy integration, great developer experience and a pay-as-you-go pricing model.

“Basiq’s fundamental mission is to enable innovation in the fintech space. By providing a platform that delivers core banking functionality through a set of secure and easy to use API services the opportunities and possibilities of what can be created are endless,” Founder Damir Cuca said.

“A key part of realising this vision is to work with existing financial institutions and fintechs and be the bridge between the two. The institutions provide the regulatory discipline and the core systems, and the fintechs provide the speed of innovation.

Managing Director NAB Ventures, Todd Forest, said: “The way financial institutions use and share data continues to be an area of focus as banks look for ways to provide improved products and services for their customers.

“Over a number of years NAB has invested in secure API technology and looked for ways it can be used to deliver improved experiences for our customers by effectively and safely using data.

“Basiq is still in its early stages, but it is developing a dynamic technology platform; as they grow and develop their platform and tech capabilities we hope this relationship will help provide us with valuable insights and opportunities for future innovation.”

General Partner Reinventure, Kara Frederick, said: “Damir is a repeat founder with a unique ability to balance the sophisticated requirements of financial institutions with the pace and specialisation of fintechs. The result is that Basiq’s platform enables an ecosystem of tailored and secure solutions that banking customers want.

“Through this investment, Basiq will help to open up a world of fintech end-to-end solutions, some of which we anticipate – like the digitisation of the traditionally manual mortgage application process – and many of which are yet to be discovered.”


About NAB Ventures

NAB Ventures was established in January 2016, as the venture capital arm of National Australia Bank (“NAB”). NAB Ventures is a global initiative supporting entrepreneurs in Australia and offshore in their quest to build leading technology companies. NAB Ventures’ partners, Todd Forest and Melissa Widner, have founded, led, and invested in technology companies for two decades in both Australia and the US. NAB Ventures invests in founders that can leverage NAB’s expertise, assets and market position, to scale both within Australia and overseas. To learn more about NAB Ventures visit: www.nabventures.com

About Reinventure

Reinventure is an Australian venture capital fund whose largest investor is the Westpac Banking Corporation, one of Australia’s largest banking and financial services companies. Reinventure’s primary objective is to bring great entrepreneurs together in a partnership opportunity with Westpac. As a result, Reinventure helps ventures to scale more rapidly than they could do on their own. Reinventure makes investments from seed to Series B. Reinventure was co-founded by Danny Gilligan and Simon Cant, and is managed along with partner Kara Frederick. The partners are also fund co-investors. Reinventure funds total $100 million across Fund 1 and Fund II and include 15 portfolio companies and growing. To learn more about Reinventure Group visit: www.reinventure.com.au.

Westpac Tightens Mortgage Lending Policy

Westpac has joined the bandwagon as from 5 June, the bank will reduce the maximum LVR on new and existing interest only lending to 80%. This change will apply across the board to owner occupier and residential investment loans, equity access loans and special borrower packages such as Medico, Industry Specialisation Policy, Sports and Entertainment, and Accounting, Law and Executive Sector loans.

Westpac will also no longer accept new standalone refinance applications for owner occupier interest only home loans from an external provider, effective from 5 June. Internal refinancing for owner occupiers will still be permitted for interest only loans, subject to maximum LVR requirements and customer suitability.

Principal and interest as well as residential investment interest only refinancing will not be affected.

Westpac will continue to waive the repayment switch fee for those wishing to move from interest only to principal and interest repayments. Premier Advantage Package customers can switch at any time with no additional costs. For fixed loans however, certain break costs may apply.

Westpac said in a note to brokers:

“We are committed to meeting our regulatory requirements, and ensuring we are lending responsibly and in the best interests of our customers. We regularly review our polices and processes based on a number of factors such as the impact of regulatory requirements and the economic environment,”

“These changes will help us continue to meet our regulatory requirements and apply responsible lending practices in assessing a customer’s ability to service existing and proposed debts.”

Westpac overhauls lending conditions

From Australian Broker.

Major bank Westpac and its subsidiaries BankSA, Bank of Melbourne and St George have announced a wide range of changes to home loan products across the board.

Westpac has increased the rates on its fixed rate investment property, SMSF and non-resident fixed investment property loans with interest-only repayments by 20 basis points. These changes came into effect on Monday (22 May).

There will be no changes to Westpac’s policy of no new lending to non-residents, however, with the increased rates only available to non-residents seeking to switch their existing lending.

The major has also updated its customer identification and verification process, meaning brokers will now also have to ask for tax residency information.

Under the Common Reporting Standard (CRS), banks such as Westpac are obligated to collect and maintain information about the foreign tax residency of their customers. This means that, effective from Monday (22 May), new mortgage customers will need to confirm if they are a tax resident of a foreign country.

The collection of this data is mandatory when finalising a customer’s loan application with a branch. If the individual answers yes, the countries where they are a tax resident plus their Tax Identification Number (TIN) will need to be collected.

“Please be aware of this new requirement as you are having discussions with your customers, to prepare them for what information they need to provide to branch staff,” Westpac wrote in a broker note.

“We regularly review our rates and the changes to fixed rates reflect prudential regulatory requirements and the economic environment,” a Westpac spokesperson told Australian Broker.

Westpac’s subsidiaries

At BankSA, Bank of Melbourne and St George Bank, a number of changes have been made to interest rates across a wide variety of owner occupier and investment products, effective Monday (22 May).

For standard fixed rate principal & interest mortgages, the three year fixed rate for owner occupiers has dropped by 21 basis points while the three year fixed rate for residential investment dropped by 30 basis points.

The interest rate for these lenders’ residential investment standard fixed rate interest only loans increased by 20 basis points for terms between one and five years.

A similar increase of 20 basis points has also been made across all portfolio fixed rate loans (of one to five year terms).

Rates for principal and interest low doc loans have only changed for those with three year terms. For owner occupiers, rates dropped by 21 basis points while for residential investment they dropped by 30 basis points.

The final rate change is an increase of 20 basis points to all residential investment low doc fixed rate interest only loans and fixed rate super fund interest only home loans regardless of the term.

Westpac’s subsidiaries have also extended the current $1,500 Refinance Cashback offer for owner occupiers and investors which was previously due to expire on 31 May. Those eligible will need to refinance from outside Westpac or its subsidiaries. Owner occupiers are restricted to switching to a principal and interest loan.

Finally, the banks have banned borrowers from switching from principal and interest loans to interest only within the first 12 months of loan drawdown. If the client requires this, a full re-origination will be required with some limited exemptions.


Westpac Sells 19% Of BT Investment Management

Consistent with this strategy to prioritise investment and capital management, Westpac Group has announced a fully-underwritten offer of 60 million shares (approximately 19% of BTIM’s shares on issue) to institutional investors domiciled in Australia and other relevant jurisdictions.

Following completion of the offer, Westpac’s ownership in BTIM will reduce from 29% to 10%. Westpac intends, subject to favourable market conditions, to sell its remaining 10% shareholding in BTIM in the future.

Completion of the offer is expected to add approximately 10 basis points to Westpac’s Common Equity Tier 1 capital ratio.

While BTIM will remain a strategic partner, following the selldown some changes in the arrangements between Westpac, BT Financial Group and BTIM will occur over time.

We estimate the post-tax profit on sale will add around A$100 million, or more than 1% of the banks FY17 earnings.