Westpac chief executive Gail Kelly has sought to dampen concerns over an industry-wide decline in lending standards, citing further falls in bad loans and saying households continued to aggressively pay down their debts.
As the country's second biggest bank on Monday posted an 8 per cent rise in half-year cash profits to $3.77 billion, Mrs Kelly responded to concerns that practices might be slipping in banking by saying all the evidence suggested borrowers were in a strong position.
In a sign of the highly favourable conditions in banking, profits were supported by a fall in soured loans, with an impairment charge of just 12 basis points of the bank's total loans, the lowest share since 2000.
Mrs Kelly said charges for bad loans would probably rise soon, but she was unconcerned because the evidence suggested borrowers were well on top of their debts.
''I would say we're probably, if not at the low point in the cycle, then very, very near it. But I'm not concerned about that; everything I see in terms of the quality of our book shows its strength,'' Mrs Kelly said.
Westpac also increased the interim dividend to 90¢ a share. But unlike the previous two halves, it did not pay a special dividend of 10¢ a share, as it assesses the impact of upcoming capital rules.
With the cash rate at a record low of 2.5 per cent and banks competing hard for new business, the Reserve Bank and Australian Prudential Regulation Authority have warned banks about lowering their underwriting criteria.
Bank of Queensland chief executive Stuart Grimshaw last month also said some banks were loosening standards in the scramble to win new business.
Westpac has recently been expanding more aggressively in home lending, after Mrs Kelly said the bank would ''tilt to growth'' six months ago.
But while Mrs Kelly said it was appropriate for regulators to flag potential concerns, she pointed to widespread improvements in credit quality.
Westpac's new impaired loans fell 37 per cent in the half, while the number of properties that had been possessed by the bank fell to 189, from 353 in September.
''I think the sector as a whole is healthy,'' Mrs Kelly said.
Alongside bad loan concerns, a recent lift in borrowing has also reignited a long-running debate about consumer debt.
Official figures show the ratio of debt to disposable income had risen to a three-year high of 148.8 per cent, and Reserve governor Glenn Stevens last month said a further big rise would be a concern.
But Mrs Kelly said this ratio overstated households' debt position because it did not take into account the role of mortgage offset accounts - and borrowers continued to pay back the bank ahead of schedule.
During the latest half, every Westpac division posted double-digit profit growth except for its institutional bank.
The bank reported a tier one capital ratio of 8.82 per cent, the highest of the big four, sparking predictions it may yet pay a special dividend later this year.
The interim dividend will be fully franked and is due on July 2.Author : Clancy YeatesSource : The Age