Westpac doesn’t rule out Fiji, PNG business sales to China
Westpac chief executive Peter King has not ruled out selling the bank’s Pacific operations to a Chinese buyer.
Westpac chief executive Peter King has not ruled out selling the bank’s Pacific operations to a Chinese buyer, but said “all considerations” would be taken into account as part of a strategic review.
Mr King was answering questions from a parliamentary committee on Friday, which quizzed him over whether the bank would act in Australia’s national interest and refuse a sale to a Chinese group, if it divested the Pacific division.
“That (strategic review) process is ongoing and we haven’t made any decisions about what we will do,” he said, noting the bank didn’t have a timeline it was working to for a potential sale.
“We’d consider that (nationality of potential buyers of the unit) at the point in time that we need to consider it.
“We would take into account all considerations … who are the potential owners and whether they meet the requirements.”
Westpac’s deliberations on its Pacific operations — across Papua New Guinea and Fiji — come amid heightened tension between Australia and China over trade, security, foreign investment and matters including the militarisation of the South China Sea.
Westpac’s Pacific operations were identified as part of a group of businesses slated for a strategic review, announced earlier this year.
The review centres on whether Westpac should remain in its wealth platforms, superannuation and retirement products, investments, as well as its Pacific, general and life insurance and auto finance units.
ASX-listed PNG wealth manager Kina Securities launched a capital raising this week and is understood to be among parties jostling to buy Westpac’s Pacific business. Others that may be logical acquirers include Bank of South Pacific and French bank BRED.
Mr King was also asked a number of questions on Westpac’s court fight with Austrac over more than 23 million alleged breaches of financial crimes law, and differences over the size of a penalty.
Westpac has set aside $900m for a penalty, but Austrac is said to be seeking $1.5bn.
Mr King said the $900m provision was “an estimate” as a court would ultimately sign off on a penalty.
“My preference is to settle this matter and go to the court on an agreed basis,” he added, saying he could not provide any specifics on talks with Austrac.
Mr King noted Westpac had enacted a range of measures to improve its compliance and management of financial crimes, including increasing headcount by 200 people in that area.
“I am deeply sorry for our failings. We are committed to fixing the issues so they don’t happen again. In terms of the court process, we have admitted to a substantial majority of the breaches.”
A large number of the breaches relate to Westpac not reporting transactions to Austrac, while others are transactions linked to potential criminal activity, including funding child exploitation.
Mr King also outlined that Westpac was prepared to withdraw from further areas of business and products if it believed it could not meet its legal requirements, after last year’s legal action by Austrac saw it withdraw from several products.
Mr King was asked about the remittance industry and payments to Pacific Island nations, as one example.
“We will stop businesses if we can’t meet the law,” he said. “The fines are just too big if you can’t meet the law.”
On the domestic economy’s prospects, Mr King said he expected an improved September quarter after growth contracted 7 per cent in the prior three months, spurring the first recession in almost three decades.
“From here it should improve,” he added. Westpac expects gross domestic product will rebound to positive growth of 1.8 per cent in the September quarter.
Mr King said given the challenges the economy faced, unemployment would be more difficult to estimate as COVID-19 continued to significantly impact the jobs market.
Westpac expects the unemployment rate will peak at 8 per cent, but Mr King admitted it was a “complicated picture”. “That is pretty hard to pin down,” he said.
Mr King said the bank expects house prices will fall “slightly less” than 10 per cent against the backdrop of the COVID-19 crisis.
Westpac expects business lending will contract 1 per cent this year, and fall more sharply by 3 per cent in 2021.
Mr King said Westpac was prepared to let its common equity tier one capital ratio dip if the macro environment and a potential spike in loan losses warranted it.
The bank is also in the process of boosting the number of staff it has to deal with mortgage and business customers seeking additional assistance during the pandemic’s fallout.
An update on Westpac’s loan repayment pauses to customers due to COVID-19 was provided, noting that engagement with mortgage customers had seen about 50 per cent indicate they would start repaying.
At the height of the crisis, Westpac had more than 138,000 customers on home loan repayment deferrals and 30,000 small businesses on repayment pauses.
“At the peak, we provided deferrals on over $50bn in mortgages. This is now down to around $30bn,” Mr King said.
“For small businesses, total loan deferrals were over $9bn. Check-ins with these customers have commenced.”
Westpac has deferred repayments on credit card balances totalling $200m.
On issue of culture and nondisclosure agreements for incidents like sexual harassment, Mr King said Westpac would not use them in the future.
The bank did not collect data on historic agreements, but will provide numbers to the committee on notice.
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