Private credit here to stay, as lending, capital markets drive institutional bank to big win

The growing financial market of private credit offers Westpac an area of growth while ­at the same time distributing risk, says its institutional bank chief.

Westpac institutional bank chief Nell Hutton. Picture: Britta Campion

Private credit is here to stay and the growing financial market offers Westpac a place to grow while ­distributing risk, says its institutional bank chief executive, Nell Hutton.

Speaking in the wake of Westpac’s $3.5bn first-half earnings update – in which its institutional bank delivered its greatest contribution to the group’s profit line ever, at 22 per cent of the overall result – Ms Hutton said the earnings update showed the result of years of work turning the business around.

Ms Hutton, who has run the institutional bank for nearly two years since taking the reins from Westpac’s now CEO, Anthony Miller, reported a nearly 11 per cent lift in earnings from the division over the past 12 months.

This came as the bank boosted its loan book, pumping out $758m in earnings, topping the $681m ­delivered 12 months earlier.

Ms Hutton attributed the results to Westpac doing more for existing clients; the bank’s fixed income and payments services was a key product for clients over the unsettled first few months of the Trump administration.

“Having the leading fixed-income business in the market really pays off, because when things are volatile there’s a lot of customer flow going through it,” she said.

“We’ve gone from being outside the top three in terms of our fixed income offer into the clear No.1 based on any league, table, or survey.”

Ms Hutton said Westpac had also booked a record half for its capital markets and loan underwriting business.

She said the growing private credit market was good for Westpac as it allowed the bank to distribute some risk to other lenders, avoiding the pitfalls that have faced the bank in prior decades when it went big on commercial property lending.

“Private credit funds can be great partners for us in distributing risk; I think they play an ­important role in the ecosystem,” she said. “That’s not going to go away.”

Ms Hutton backed the Australian Securities and Investment Commission’s reviews of private credit and unlisted assets, saying there was a need for “appropriate oversight” and transparency on valuations.

Westpac’s New Zealand arm has been a backer of Sydney private lender Pallas Capital. The bank offered the Double Bay players a $NZ360m ($331m) facility. Ms Hutton said the bank was also targeting growth in its payments business, investing nearly $400m into Westpac One – the new platform for the institutional bank. She said it was expected to pay for itself over two years.

Ms Hutton said this was coming as Westpac prepared for the decommissioning of the legacy BICS payment system in 2030.

The retreat of ANZ from capital markets, amid scandal and an ASIC investigation, had also helped Westpac.

ANZ has been pilloried by regulators over its non-financial risk failures, amid allegations the bank rigged a government bond placement in 2023.

Ms Hutton said Westpac had been fixed on dealing with its non-financial risk issues, after a scorching Austrac fine and Australian Prudential Regulation Authority undertaking. “We invest a lot in our supervision in our systems for supervision, training, employee engagement,” she said.

“Our surveillance. It’s got to be a differentiator … for the bank.”

Ms Hutton said Westpac had been internally focused for some time around risk issues, but noted the bank had also used this time to improve its services to customers.

The former Goldman Sachs banker has just returned from a US trip, where she met several power asset managers and politicians. She said the Trump chaos had clearly rattled markets, noting the April “Liberation Day” tariffs announcement had benefited the bank amid trading volatility.

Ms Hutton said a consequence from Mr Trump’s ascendancy would be a permanent shift in conditions needed for investments.

“Markets now are going to permanently require a higher risk premium in terms of returns that are required to deploy capital, given increased risk, and that’s not going away anytime soon,” she said. “There’s a new world order and the old way that we thought about things has gone.”

She said this would be negative for US and global growth, but noted she expected the world to avoid a recession.

Originally published as Private credit here to stay, as lending, capital markets drive institutional bank to big win