Westpac Banking Corporation (ASX: WBC) is set to announce another round of amendments in its residential lending policy, leading to further tightening for the existing borrowers. The bank would be the first among the topmost lenders to increase the standard variable rates. The latest policy tightening follows the previous two rounds in April, June, and August. Westpac is looking forward to increasing the standard variable rated by 14 basis points from the past week. Other majors such as ANZ and CBA are set to up their rates by 16 basis points and 15 basis points each over the next couple of weeks. Westpac has come up with five significant changes in the lending policies including lease commitment, Afterpay verification and tightening cash-put applications.
Major lending institutions are rushing to increase the funding cost to cover the funding costs thereby making it more expensive for the existing borrowers. Further, competition would also be heightened for the new borrowers and the buyers who are looking for the lower rates. An analysis of the lowest variable, package and three years fixed-rate loans from the four biggest lenders in the country suggests that Westpac’s three years fixed ‘premier advantage’ loan at 3.89 is cheaper by five basis points when compared to that of NAB according to Canstar. Earlier, the changes were made by the bank to address regulators’ concerns over piling up debts, increasing prices of the property and growing popularity of interest-only repayment loans. Westpac revealed that the fresh changes have also been made to “meet our responsible lending obligations”. The bank added that their policy changes are inclusive of disclosure of all debts, rental payments, child support or maintenance commitment, statutory declarations, property utilities, rates, and related expenses.
This year in May, Westpac responded strongly to the Banking Royal Commissions’ publication which stated that the bankers’ lending controls were futile. The bank also stated that the PwC report has been blown out of proportion thus confusing the market. The report surveyed 420 loan packages offered by Westpac wherein 9% did not go through the serviceability criteria. Simply put, these are extended loans and the customers do not have the ability to repay these loans. The report further claimed that the only “control objective” that turns out to be effective was the documentation of the verification policies. Other nine controls under Australian Prudential Regulation Authority (APRA) including the process to decide on the income and expenses were ineffective.
Earlier, this month Westpac agreed to settle the case with ASIC by paying $35 Million in the penalty for flouting the National Consumer Credit Protection Act. In the settlement, subjected to Court approval, Westpac accepted that between December 2011 and March 2015 there were some 10,500 loans that did not meet the criteria, yet approved. The bank stated that Westpac’s automated decision process approved the loans that should have otherwise gone to a credit officer for the manual assessment.
WBC’s shares traded at $27.840, up 0.288% as on 17 September 2018 (AEST: 2:56 p.m.).
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