The bank’s quarterly update shows bad debts in its mortgage book fell while capital levels dropped due to accounting rules relating to higher interest rates.
Westpac has released a quarterly update showing capital levels drifted lower, an impact of higher interest rates, while bad debts in its mortgage book fell, highlighting strong foundations as banks brace for a tougher year next year.
Banking analysts expect bad debts to rise next year across the sector on the back of higher official interest rates – but for now, bad debts are still falling. Westpac said the proportion of stressed loans, compared to total loans, was 1.06 per cent, or 0.04 percentage points lower than the March quarter.
Westpac said in the rising interest rate environment, the ‘interest rate risk in the banking book’ had increased by almost $16 billion, due to an ‘embedded loss’ that flows through from higher interest rates when its capital is invested over three years. This was the major component of a 3.9 per cent rise in total ‘risk weighted assets’ over the quarter to $478 billion, reducing CET1.
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