Westpac flags $260m first-half hit as cost of customer refunds mount

Westpac has warned its interim earnings will take a $260m hit due to the ongoing process of refunding customers.

People walk past a Westpac Bank branch in Sydney. Hollie Adams/The Australian

Westpac has flagged a $260 million hit to first half cash earnings due to provisions arising from its customer remediation programs in the wake of the Hayne royal commission, taking the total to $659m with all of its fees-for-no-service refunds yet to be tallied.

In a statement to the market this morning, Westpac (WBC) said that 90 per cent of that figure related to issues identified in previous financial years. Half of that provision figure related to the financial advice business, while the remainder related to business and consumer banking.

“A key priority is to deal with outstanding remediation issues and refund customers as quickly as possible,” said chief executive Brian Hartzer.

“As part of our ‘get it right put it right’ initiative we are determined to fix these issues and stop these errors occurring again.

“We will continue to review our products and services to ensure they deliver the right outcomes for customers, and if necessary, make further provisions.”

The bank’s 2018 full-year results were impacted by $281m in customer remediation programs and legal costs. Various remediation provisions cost Westpac $118m in cash earnings for the 2017 fiscal year. Westpac has now provisioned $659m for customer remediation over two and a half years.

The remediation costs follow revelations during the banking royal commission, which uncovered examples of dodgy practices by financial advisers.

Westpac said this morning that the provisions reflected an increase in the estimated proportion of instances where records of financial advice fees charged were insufficient, resulting in an increase in provisions and bringing the estimated proportion of fees that will be refunded to around 28 per cent.

The provisions also included refunds to customers who had interest only loans that did not automatically switch to principal and interest loans, as well as to business customers who were provided with business loans where they should have been provided with loans covered by the National Consumer Credit Protection Act.

Westpac said it is still trying to calculate fee-for-no-service refunds for customers of authorised advisers.

Last week, Westpac unveiled a restructure of its wealth business as it entered into a deal to exit its financial planning arm.

At around 2pm (AEDT) Westpac shares were down 1.6 per cent, against broader markets falls of around 1.2 per cent.