Westpac New Zealand CEO Catherine McGrath. Photo/Mark Tantrum
Around 50,000 Westpac New Zealand home loan customers will leave a fixed term rate of less than 4 per cent and move to a higher rate in the next six months, but
its chief executive is confident that the bank has plans to support them.
CEO Catherine McGrath told the Herald that she had changed her approach to outreach to clients with a flat fee.
“We are contacting them earlier, so it is 75 days before the interest rate goes up. We also allow them to lock in the rate starting at 60 days and the reason we’re doing all of that a little earlier is to help customers.
“We are working with clients to help them think about what they can do to make sure they are resilient as their borrowing costs rise.”
On top of that, it will target around 1,000 clients per month, which saw particularly large increases, he said.
“We will reach out to them in person and call them to see what we can do again to make sure we can help.”
Mortgage rates have risen sharply due to the big increase in the official cash rate from 0.25 percent to 3.5 percent. Home loans hit a low of 2.25% during 2020, but have risen sharply since 2021 and are now hovering around 6%.
McGrath said he had been adding 2.5 percentage points to advertised rates to assess the affordability of borrowers.
“When we’ve been screening people for their home loans, we’ve added an interest rate of 2.5 percent to the rate they’re borrowing at to make sure we’re comfortable that, in an environment of interest rates rising interest, they can manage the level of loan they need. to have.
“For the vast majority of our clients, none of them so far have reached a rate outside of that level where we’ve been stressing them out. That’s good and that means we’re not seeing any evidence of stress in the book right now.”
But he said the bank was “well aware” that as mortgage rates continued to rise, it would start to see customers moving out of that zone.
The bank had created more face-to-face capacity by opening its branches for longer hours and had opened a new contact center in Hamilton.
“One of the reasons we’re building more face-to-face capacity with our branches open longer is that they’re there for people to have to support those important face-to-face conversations that we like to have when things get a little busy. difficult. We have more people in our contact centers and we are opening a new center in Waikato.”
Mortgage sales have been at record low levels during the pandemic, but McGrath said the number is likely to rise.
“We only had 24 mortgage sales in FY22. They are at record lows and as interest rates rise, it would be unusual for mortgage sales not to rise again to levels that reflect longer-term trends.”
The bank had 70 mortgage sales in fiscal 2017 before word of Covid-19.
“The reason we’re doing all that outgoing engagement early is to do everything we can to help people make the necessary adjustments to help them manage that impact because obviously, that’s the worst case scenario, that we end up in a mortgage sale that we really do not want to do”.
Westpac NZ experienced strong loan growth in its last financial year, helping to boost your net profit down 12 percent to $1.047 billion. Although much of the increase in earnings was due to the one-off sale of his life insurance business. Excluding that he had a decrease in his cash earnings.
McGrath described it as a “solid” result.
Total loans increased 5 percent to $96.8 billion and mortgage loans increased 5 percent to $63.8 billion. Deposits also rose 3 percent to $77.9 billion.
But McGrath said credit appetite had slackened.
“Which is what I would expect to see given what we may see in the next year.”
But he said the bank had strong business momentum in terms of increasing its market share in that market.
In terms of business loans, it had risen largely fueled by its institutional bank, where loans were up 14 percent year over year.
“We have had some small reductions in other parts of our book of business and with understandable reductions, particularly in hospitality, tourism and retail and also a little bit in manufacturing and wholesale.
McGrath said business confidence was low.
“Factors affecting that are rising material costs due to inflation, the labor market is still quite tight and obviously driving up interest costs, but we’ve also seen that the low New Zealand dollar is benefiting exporters and fuel costs appear to have stabilized.
“Overall, our clients are doing well and so far we haven’t seen any early warning signs of delinquency.”
McGrath said he had a three-pronged approach for the next six months.
“We want to continue to maintain that business momentum, the second thing is to make sure that we help customers both with the cost of living and to be more sustainable.”
A big focus was their Westpac warm-up loan scheme. That could help cut emissions, but also taking advantage of that zero percent financing could help lower utility bills for homeowners, since it made it easier to heat the home.
“Helping New Zealanders make some of those changes that we all need to make is something we’re pretty focused on.”
But the most important thing was to make sure its bankers had the capacity to support clients as New Zealand headed into a more challenging economy in the coming year.