Westpac to refund some package customers, costs $65m

Westpac has announced it would provide refunds to some customers holding ‘packaged’ accounts after identifying that some customers did not automatically receive benefits to which they were entitled.


The issue affected approximately 200,000 customers who held Premier Advantage Packages with Westpac or Advantage Packages with St. George, BankSA, or Bank of Melbourne from 2010.

Under the terms of the packages, customers were entitled to a range of benefits. Customers automatically received discounts on core products such as home loans, credit cards, or transaction accounts. However, some customers did not receive discounts on ancillary products such as home and contents insurance and term deposits. The packages have since been simplified and all benefits are now automated.

Westpac Chief Executive, Consumer Bank, George Frazis, said: “At Westpac, our business depends on building long term relationships with our customers. So when we get something wrong, we want our customers to have confidence that we will put it right.

“When we identified these issues we started the process of putting things right for customers. We also notified ASIC.

“Importantly, customers do not need to do anything. Over the coming months, we will provide refunds, including appropriate interest, to any customers who may have been entitled to a benefit but weren’t aware they needed to opt in.

“Westpac apologises unreservedly for a process that did not suit customers. By automating the discounts, we have ensured that our customers will not be affected in this way again.”

Mr Frazis said that some customers with various business banking packages may also not have received some of the benefits they were entitled to. Affected customers will also receive refunds.

Refunds are expected to total approximately $65 million with an after tax cost to Westpac of around $45 million, which will be included in Westpac Group’s FY17 financial results.

Westpac will proactively contact eligible customers, but has set up a dedicated webpage to assist with any questions. Business customers can also contact their relationship banker directly.

No maths formula for rate repricing: Westpac

From Australian Broker.

There is no document or formula that exists behind Westpac’s decision to raise interest-only loan rates in light of lending speed limits imposed by the Australian Prudential Regulation Authority (APRA).

Instead, the bank has said differentiating rates between interest-only and principal and interest loans have been made as a “judgment”.

These claims came to light when Westpac’s CEO Brian Hartzner and chief financial officer Peter King faced the House of Representatives Standing Committee on Economics in its review of Australia’s four major banks in Canberra yesterday (11 October).

The bank made estimates around what the size of the gap between IO and P&I rates would be, Hartzner said. While forecasts were made around these changes, it was difficult to see exactly what would happen as it was impossible to accurately guess how many customers would switch mortgage types.

“It’s not a mathematical formula, it’s a judgment,” he said.

While there was no physical documentation that exists around different price points, Hartzner admitted the bank would have modelled around profitability and rate changes.

“Obviously we consider commercial issues in the things we do.”

When committee chair David Coleman questioned whether regulation was being used to boost bank profits, Hartzner outright denied this.

“I would reject the idea that compliance is a profit centre.”

Westpac spends $300m to $400m per year on compliance – fees which the bank was not going to recuperate, he said.

Profit was not a primary driver for these changes, he said, stressing that the main push was to manage Westpac’s balance sheet.

At the moment, around 50% of Westpac’s existing loan book consists of IO loans.

Hartzner’s message to borrowers was simple.

“Switch to a principal and interest loan. It’s cheaper.”

… As Does Westpac

All the major banks have removed foreign ATM fees. The ABA welcomed the move.

Statement from Anna Bligh, Australian Bankers’ Association Chief Executive:

“The ABA welcomes the announcement from the major banks today to abolish ATM fees.

“It’s a boon for customers and makes banking more affordable for everyday Australians.

“This is the latest in a suite of initiatives by banks to create better products and services for customers and boost customer choice, including reducing interest rates on credit cards and offering fee-free transaction accounts.

“A competitive banking system is good for customers and good for the sector.”

Westpac Cuts Fixed Mortgage Rates Too

From The Advisor.

As of Wednesday (20 September), Westpac’s two-year fixed rate for owner-occupiers paying principal and interest (P&I) dropped by 11 basis points to 4.08 per cent (standalone rate) or 5.16 per cent comparison.

For those with a Premier Advantage Package, the new rate is 3.88 per cent (4.88 per cent comparison) for two-year fixed terms.


At Bank of Melbourne, Bank SA and St. George Bank, the new standard two-year fixed rate for owner-occupiers on P&I is 14 basis points below its former level, at 4.00 per cent (5.14 per cent comparison).

The group clarified to brokers that customers will receive the new lower rate on applicable loans if they have already rate-locked their fixed rate, and if the rate locked in is higher than the new rate, on the date the loan settles (provided that there is no further fixed rate change).

If the rate locked in is lower than the new rate, then they will not be impacted by this change (i.e., they will get the rate they locked it at).

Westpac’s move to drop its two-year fixed rates follow on from similar moves from Suncorp, ANZ, CUA, and MyState Bank. Suncorp Bank recently said that the rate drop follows on from “recent reductions to fixed rate funding costs”.

Westpac facing ASIC loan assessment allegations

From Australian Broker.

Westpac’s usage of expenditure indexes to assess borrower suitability has come under fire by the Australian Securities & Investments Commission (ASIC) in its ongoing legal battle with the major bank.

The civil proceedings allege the bank failed to conduct proper assessments to ascertain whether borrowers could afford to repay their home loans. Westpac has denied this claim.

Court filings obtained by the Australian Financial Review put the spotlight on Westpac’s use of the University of Melbourne’s household expenditure measure (HEM) to determine borrower suitability.

In these documents, ASIC claims that the bank reliance on the HEM to assess borrowers led to approvals where a “proper assessment” based on actual spending would have unveiled a monthly financial shortfall.

ASIC said that the benchmark was based on “conservative” estimates of what a household would spend and “represents only an estimate of what Australian families consume”.

Furthermore, the regulator said that the HEM used “was not compiled by reference to expenditure data collected during the relevant period”. In other words, it claims Westpac used HEM benchmarks based on data from 2009 to 2010 when assessing borrowers for loans issued between December 2011 and March 2015.

Further allegations state Westpac only “scaled” the HEM to account for location, number of dependants and marital status when this could also have been extended to other factors, such as total household income, net wealth, savings patterns, and number of credit cards.

Westpac has said that the court action does not concern current lending policies or practices, reported the AFR.

The bank defended the HEM benchmark in its defence filing, saying it was an “objective measure that does not depend on the quality of a consumer’s estimation of their expenses … [and] excludes discretionary non-basic expenses that a consumer could reduce to meet their commitments without substantial hardship”.

In a statement released in March, Westpac Group chief executive of consumer bank George Frazis said that the bank had confidence in its lending standards and processes.

“It is not in the bank’s or customers’ interests to put people into loans that they cannot afford to repay. It goes hand in hand that we have robust credit approval processes while helping customers purchase their home,” he said.

“Our credit policies are informed by our deep experience and understanding of the mortgage market.”

Frazis said Westpac used “sophisticated systems” including the HEM to develop a broad analysis of customer expenditure.

“In our experience this survey is a useful input into our loan assessment process, in combination with our understanding of customers’ circumstances,” he said.

Westpac has denied claims that it relied solely on the HEM benchmark and that it failed to account for the customer’s declared expenses in its unsuitability assessment.


Westpac eases IO lending conditions

From Australian Broker.

Westpac has dropped its fixed rates on interest only loans while bringing in new introductory offers on a number of variable rate products.

The bank has decreased rates on its Fixed Rate Home and Investment Property Loans with IO repayments by as much as 30 basis points. This sets the new fixed rates for owner occupiers between 4.59% p.a. and 4.99% p.a. while rates for investors lie between 4.79% p.a. and 5.19% p.a.

“We regularly review our rates. We’ve been adjusting some over the past few months to remain competitive and ensure we meet our composition targets – i.e. the regulator’s 30% sector cap on IO loans,” a bank spokesperson told Australian Broker.

Rates for fixed rate interest only investor loans locked in for between six and 10 years remain unchanged.

Westpac has also brought in a two year introductory offer on its Flexi First Option Home and Investment Property Loan for new lenders. Refinancing and foreign lending is excluded.

Changes include an increased discount for the first two years of the Flexi First Option Home Loan for P&I payments and the introduction of a similar discount for Flexi First Option IO investor loans. After two years, the loan will roll over to the base rate:

2 year intro rate Discount Base rate
P&I owner-occupier 3.88% p.a. 0.71% p.a. 4.59% p.a.
P&I investor 4.18% p.a. 0.96% p.a. 5.14% p.a.
IO owner-occupier 5.18% p.a. None 5.18% p.a.
IO investor 4.88% p.a. 0.77% p.a. 5.65% p.a.

The bank has also removed its revert rate discount from all Flexi First Option Home Loans for owner occupiers and investors.

All changes came into effect on 30 August.

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.