Westpac slammed for interest rate hike
WESTPAC will become the first of the Big Four banks to hike its variable home loan rates, a move the rest of Australia's financial institutions are expected to copy.
In a statement yesterday, the bank said it would raise rates by 0.14 per cent from September 19 due to an increase in its wholesale funding costs.
In the past six months, Westpac made a profit of $4.2 billion, a whopping dollar figure that left 7.30 host Leigh Sales questioning why the company couldn't put that towards increasing costs.
On the ABC program tonight, Westpac CEO Brian Hartzer explained why it had to pass on the costs to customers instead of lessening profit.
"This is a difficult decision. Any time we are affecting people's cost of living, it is something that we take very seriously but we borrow the money to fund people's home loans and the cost has gone up," Mr Hartzer said.
A family with a $300,000 home loan will fork out an extra $35 in interest per month while Aussies with a $500,000 home loan will spend an extra $516 a year on interest.
Sales put to the bank boss, that was an amount every household would now have to factor in.
"An ordinary household has to work within their budget to pay the extra money on their mortgage yet one of the wealthiest institutions can't do the same?"
Westpac's last profit was up six per cent but the bank CEO said, despite the profit, its margin had been "significantly impacted" since costs began to rise in February.
"Part of my job sometimes is to make difficult decisions that are about the long-term sustainability of our business and that involves addressing increases in funding costs," Mr Hartzer said.
A month before the first findings of the banking royal commission are released, the Westpac CEO admitted there had been "a bunch of issues going on".
Describing the royal commission as a "searing experience", Mr Hartzer said he understood customers "frustration" with the interest rate hike.
"At the same time, Leigh, we have to run our business and part of that is to acknowledge the realities of higher funding costs," he said.
Westpac moved out of cycle with the Reserve Bank which kept the official cash rate at a record low 1.50 per cent since 2016 and signalled a steady path for some time.
Westpac said its variable mortgage rate for owner-occupier properties will increase to 5.38 per cent per annum for customers with principal and interest repayments, while the rate for residential investment properties will go up to 5.93 per cent.
"Customers wanting to switch from a variable interest only loan to the lower rate principal and interest loan can do so without any penalty or fee," the bank said.
RateCity research director Sally Tindall said Westpac had held out longer than the market expected before caving into the pressure to hike rates.
"Westpac has today asked their variable rate home loan customers to help ease their cost of funding pressures," Ms Tindall said.
"While banks are entitled to make a profit, some Westpac home loan customers will be disappointed with the bank's decision to increase their interest rate.
"Most households will be able to absorb the rate hike, however anyone who overstretched to get in the market will feel burdened by this extra cost.
"Now that Westpac has hiked, taking the brunt of the bad PR, we expect the other three banks to follow suit.
"If your lender hikes your interest rate, it's the perfect time to start considering your options.
"Ironically the banks are desperately seeking out customers to boost their lagging profit margins. They're doing this by offering rock bottom rates, but only to new customers so if you've got a bit of equity in your home, now is a great time to consider refinancing," she said.
The Australian Stock Exchange has reacted to the bank's announcement and by 3.30pm today, Westpac shares had risen to $28.90, up 2.8 per cent, from $28.39 just before the announcement.
Shares in other major banks also moved higher, taking the S&P/ASX 200 financials index up 1.5 per cent in afternoon trading.