Economic downturn will be manageable for bank, says Westpac CEO

Westpac chief executive Peter King says a coming economic slowdown and rise in interest rates will be manageable for the banking giant, as Macquarie Group chief executive Shemara Wikramanayake also sought to highlight the quality of its mortgage book.

King, who runs Australia’s second-largest mortgage lender, signalled one of Westpac’s top concerns was how customers handled rising interest rates and higher unemployment.

Macquarie Group chief executive Shemara Wikramanayake and Westpac’s Peter King.Credit: Louie Douvis

Economists believe the economy will slow sharply this year as consumers rein in spending, which is likely to drive unemployment higher, and bankers expect this will lead to more mortgage stress. Even so, King told an industry event in Sydney that the slowdown would occur gradually and be less severe than past downturns.

“This, I think, will be an event that just builds momentum; it’s not something that’s going to stop. Interest rates go up. It takes a while to feed through. It’s really a customer event,” King said at an International Institute of Finance event on Wednesday.

He said one area the bank was “doing a lot of thinking” about was which customers were likely to get into trouble, and how Westpac could help them. Despite the softening outlook, King said the economy’s fundamentals were still “pretty good”, pointing to opportunities in sectors including health, agriculture and decarbonisation.

“Given what we’re looking at, unemployment will go up … but we don’t think it’s of the scale that we’ve seen in previous deep … recessions, so it’s very manageable. And that means that you can actually think about what are the opportunities,” he said.

King told a different event last month that the bank would use its strong balance sheet to help struggling customers through difficulties, such as by restructuring debts or putting people onto interest-only payments.

While retail banking is a relatively small part of Macquarie, its Australian mortgage portfolio has been growing rapidly and was worth $105.4 billion at the end of December.

Wikramanayake, appearing alongside King on Wednesday’s panel, said the bank was being careful to lend to quality borrowers, and it was not chasing home loan growth for its own sake.

“We also have an obligation to other stakeholders, our funders for example, the savers who give us their deposits to fund this, and so we have an obligation to make sure we are doing good quality credit lending for them,” she said.

When she said Macquarie was “tiny bank” in Australian mortgages, with a share of less than 5 per cent of the market, King jokingly interjected: “Come on, you’re a big one.”

The comments were part of a wide-ranging panel discussion in which the two bank bosses touched on topics ranging from geopolitics, to artificial intelligence, to investments in renewable energy and the climate transition.

Macquarie is a major financier of renewable energy, and also a significant player in fossil fuel energy markets, and this has meant the bank has benefited from volatility in energy markets in the past.

Last month, the US state of Kansas filed a lawsuit against Macquarie Energy LLC, alleging natural gas market manipulation during a severe 2021 winter storm. According to the lawsuit, on February 16, 2021, Macquarie bought gas for next-day delivery “at the single highest price ever paid for Southern Star natural gas”, which the Kansas attorney-general’s office said had the effect of artificially increasing gas prices by “hundreds of dollars” per million British thermal units. A spokeswoman said: “Macquarie Group does not comment on active litigation.”

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