Fixed-rate borrowers aren’t scaling a mortgage cliff, says Westpac’s Chris de Bruin

Westpac’s consumer and business banking boss expects there is more of a mortgage step than a cliff confronting fixed-rate borrowers navigating sharp rate increases.

Westpac’s head of consumer and business banking Chris de Bruin. Picture: Chris Pavlich

Westpac’s consumer and business banking boss Chris de Bruin expects there is more of a mortgage step than a cliff confronting fixed-rate borrowers navigating sharp rate increases, even though he is readying for some loan stress.

The major banks have started processing a refinancing wave of $500bn as borrowers who fixed record low home loan rates see their terms expire and revert to markedly higher variable rates. The Reserve Bank has aggressively lifted rates this year – seven times to 2.85 per cent – and the banks have largely followed suit on mortgage pricing.

Mr de Bruin outlined that Westpac was mobilising some of its hardship and loan resources to assist those finding it tough “in anticipation of challenges”.

“None of it is arriving at this point, we have astonishingly good credit quality right now,” he said. “But nonetheless the mathematics of rate increases tell you … that hurts the more vulnerable the customer is. We still see prospectively there is more stress to come.”

Mr de Bruin said that given expected further rate increases, the buffers banks built into home loan serviceability assessments last year were “about to be exhausted”.

But as 68 per cent of Westpac’s home loan customers were entering the period ahead on their repayments, Mr de Bruin said he expected most borrowers navigating their fixed-rate term ending would fare well.

“There is no cliff; what is happening is for an individual you still have to do the step,” he said, noting the bank was engaging with customers on the fixed-rate changeover and was seeing an 86 per cent retention rate.

Westpac has started to turn around its mortgage processing issues of last year after a blowout in turnaround times resulted in it losing market share. It is now growing at a similar rate to its major peers.

Mr de Bruin, who joined the bank in February 2021, said it had been a difficult period but the simplification and fix strategy was paying off.

“Think about the journey as sort of a three-year transformational arc that we are a little bit past halfway. The results just tell you we’ve gone from not growing to growing, from being inefficient to being efficient from being slightly erratic to now quite consistent,” he said.

On fierce competition for refinancing mortgage customers and attracting new ones in a slowing market, Mr de Bruin said Westpac would “compete sensibly”.

Banks have been benefiting from rising interest rates as they lift mortgage rates at a faster pace than rates on deposits, although analysts have highlighted that competition for customers would erode some of those gains.

Westpac and National Australia Bank rounded out the banks’ earnings season this week, with the majors notching up combined cash profit after tax, from continuing operations, of $28.5bn. That was the highest result since 2018.

Westpac’s consumer banking unit – its largest – saw cash earnings decline 11 per cent in the year ended September 30, versus the prior 12 months, but showed improving metrics in the latter half. Revenue in that division rose 4 per cent in the second half.

Core earnings, excluding notable items, climbed 13 per cent to $2.6bn in the second half, compared to the prior six months.

Westpac has, however, faced some setbacks in the rollout of its one-bank mortgage platform that aims to digitise and standardise systems across its brands, including in mortgage processing.

After receiving some mortgage broker feedback and facing operational delays the bank added additional functionality, but appears to be three months behind schedule in putting all home loans through the new system rather than legacy platforms. All of Westpac’s branches and bankers are using the new platform but about 30 per cent of brokers are not yet using it. Mr de Bruin said the broker rollout would conclude by March 31.

Westpac is pushing ahead with its direct digital mortgage which the bank says can provide unconditional approval in as little as 10 minutes. The product has been released in a limited way for single borrowers seeking to refinance, and will be rolled out to different customer groups next year.

Westpac trails rivals such as Commonwealth Bank on the release of a fully-fledged direct digital mortgage, although ANZ is still working on its proposition.

“We are scaling it steadily … it’s all about building digital journeys,” Mr de Bruin said.

Westpac will eventually add biometrics in the identity checking linked to the digital mortgage.

“One of the problems in Australia is we don’t have … a well developed digital identity national or sovereign system that does that, so we have to do a little bit more on our end,” Mr de Bruin said.

He admitted the bank had more work to do at the smaller end of the business banking market to improve performance.

Mr de Bruin said given Westpac’s presence as a transactional bank to many small and micro businesses there was an opportunity to engage more with those customers. “As we’ve corrected the general consumer mortgage the business mortgage now comes up for focus over the next six months,” he added.

“We are confident that Westpac’s on the right track,” Mr de Bruin said on Friday.