Yesterday’s decision by Westpac to hike home loan rates by 0.20% wasn’t really the shock many characterised it as.
Perhaps the shock was in the timing, but former Westpac CEO Gail Kelly flagged such a move in November last year warning that all Australians and the economy would have to carry the cost of making the financial system more stable.
But just because Australians were warned doesn’t mean it’s right, according to Federal treasurer Scott Morrison. Morrison implied that the Westpac move was a cynical one made to sweeten the bank’s capital raising which was also announced yesterday.
“The decision by Westpac to increase the variable mortgage rate by 20 basis points is a commercial decision by the bank to support their capital raising requirements,” Morrison told the AFR.
Westpac CEO Brian Hartzer, like Kelly before him, laid the blame squarely at the feet of Australia’s banking regulator, APRA, saying that its desire to buttress the banking system from the potential impact of an economic downturn or banking crisis was to blame.
Hartzer told the AFR that APRA’s idea of “unquestionably strong” is that “in the event that the economy gets into trouble, we need banks to be able to continue to generate loans to support the economy. And in order to do that they need to have a healthy return on equity, which generates equity that can support ongoing lending.”
That’s thinly veiled banker code for “profits”.
Indeed, on Westpac’s $342 billion home loan book, the extra 0.2% it is now charging Australia’s home owners equals an extra profit of $684 million.
That, Morrison says, is excessive.
“This is in excess of what I am advised would be sufficient to meet the new requirements set out by APRA and the recent similar capital raisings of their banking competitors,” Morrison said.
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