Westpac to raise home loan interest rates to protect against future financial crises

Westpac plans to raise home loan interest rates to shore up its capital buffers to protect against future financial crises.

The bank’s variable rate mortgage loans for owner occupiers and property investors will rise by 20 basis points from the middle of next month.

The move will increase Westpac’s headline standard variable mortgage rate to 5.68 per cent for owner occupiers.

The variable interest rate for investor loans will rise to 5.95 per cent. Fixed rates are unchanged.

Savers will also benefit as Westpac will increase interest rates on some new term deposits by 25 basis points from Friday.

The big bank also plans to raise $3.5 billion to boost its capital reserves in the wake of new banking regulations from the Australian Prudential Regulation Authority (APRA).

It will sell new shares at $25.50, a 13.6 per cent discount to the last traded share price of $29.50.

Westpac said the funds would bring the total raised this year to meet new capital requirements to about $6 billion.

This is a difficult decision and one that is not taken lightly.
Head of Westpac’s Consumer Bank George Frazis

Head of Westpac’s Consumer Bank George Frazis said the regulatory changes meant that the amount of capital that needed to be held by big banks against mortgages would rise by more than half.

“As we have always said publicly, while Westpac is well placed to meet these changes, a significant increase in capital ultimately increases the cost of providing home loans to customers,” he said.

“This is a difficult decision and one that is not taken lightly.”

In recent months, all major banks have raised new capital to meet the new regulations.

To support its capital raising, Westpac released its preliminary results for the 2015 financial year.

It said it made an unaudited net profit of just over $8 billion in 2015, a rise of 6 per cent from 2014.

Westpac posted a 3 per cent rise in cash earnings to $7.8 billion. It expects to pay investors a final dividend of 94 cents per share, fully franked.

The bank’s chief executive, Brian Hartzer, said the result was driven by strong gains in customer numbers.

Lending rose 7 per cent and customer deposits increased 4 per cent.

The net interest margin, the difference between what Westpac pays for finance and the interest rate at which it lends money, was flat at 2.08 per cent. Expenses rose 5 per cent in 2015.

Westpac’s final profit results will be released next month.

Source: ABC News