Westpac Banking Corp sought to assuage nervous investors about the quality of its loan books, with chief executive Brian Hartzer assuring them bad loans remained isolated and conditions in the Australian economy did not point to any looming deterioration in credit.

Westpac shares closed down 3.5 per cent to $29.95 on Monday after recovering steeper losses earlier in a volatile trading session, where the market fretted about a weaker outlook for housing, funding pressures on margins, and lower fee income after the Reserve Bank cracked down on credit card interchange fees.