Westpac notes drop in stressed loans

Westpac said stressed assets slipped four basis points to 1.10 per cent helped by a reduction in impaired assets and confirmed it is well placed to meet APRA’s ‘unquestionably strong’ benchmark.

In a Pillar 3 third quarter update released on Monday, the lender said its common equity tier one capital ratio stands at 10 per cent - not too far away from the prudential regulator's requirement that the big four banks have CET1 capital ratio of at least 10.5 per cent.

In the release, Westpac confirmed asset quality was sound during the June quarter. However, mortgage delinquencies rose two basis points mostly due to increased hardship during Cyclone Debbie.

Westpac, which posted a first-half cash profit of $4 billion in May, did not disclose profit or revenue figures in its typically limited Pillar 3 update. Defaults on unsecured loans increased twelve basis points to 1.75 per cent but this was mostly due to APRA's hardship reporting changes.

In essence, these relate to how accounts in hardship migrate through delinquency buckets - 30, 60 and 90 days. In mortgages, the change lifted 90+ day delinquencies by around 16 basis points. For unsecured consumer lending, the change lifted 90+ day delinquencies by around 49 basis points.

Dramatic cut

All up, total stressed assets were down $0.2 billion to $11.0 billion and impaired assets were $65 million lower at $1.9 billion. This jibes with the other major banks, which all reported a decline in charges related to bad debt in their results' releases earlier this month.

In the update, Westpac said watchlist and sub-standard assets dropped by $195 million. The lender's net stable funding ratio is at 108 per cent and the liquidity coverage ratio of 128 per cent changed little over the quarter.

Managing mortgage growth within macro-prudential boundaries saw a dramatic cut in interest-only lending to 44 per cent in June from 52 per cent the previous quarter. The lender said it was on track to have interest-only lending below 30 per cent in the September quarter 2017.

Investor lending growth sits comfortably below the prudential regulator’s 10 per cent cap, according to the Westpac release.

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