Westpac executive warns of tightening credit conditions
(25 July 2016 – Australia) Westpac’s business banking chief David Lindberg said that credit ratings downgrade could lead investors to give the banking sector a negative mark, thereby tightening credit conditions across the economy while funding costs rise.
“When we try to calculate what that will do to funding costs, the answer is it will absolutely put upwards pressure on funding costs,” Lindberg told The Australian.
“We’ve got to be careful about piling up negative mark after negative mark, because the cumulative effect can be damaging to global investors’ desire to put money into Australia, and that will absolutely flow through to funding costs and will flow through to general rates of interest in the economy at large over time.”
As regulators are more closely scrutinising commercial lending, Lindberg said that Westpac’s lending book is shifting away from property-led growth towards other sectors such as health care, education, and professional services. Lindberg predicted that commercial property lending will slow down to “mid to low single digit” this year after two consecutive years of double-digit growth.
The bank has been growing its business loan book, according to the Australian Prudential Regulation Authority’s data. With 17.3 per cent of business loans, Westpac is the third largest player behind the National Australia Bank and Commonwealth Bank.
“Today’s game is supporting your best customers in the most attractive segments,” Lindberg said. “If that means you grow above the system, that’s terrific, but if you grow a little bit below at times, I’m equally happy with that outcome.”
According to East & Partners’ Deposit Funding & Debt Index, the Australian mid-market continues to drive credit demand. Corporates comprise nearly 45 percent of all business lending volumes, outstripping the SME segment (23.8 percent), populous Micro business segment (18.3 percent) and institutional enterprises (13.0 percent).
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