Westpac eyes Reserve Bank credit facility

Westpac New Zealand is keen to draw on its new $5 billion mortgage-backed credit facility with the Reserve Bank, set up to aid liquidity at a time normal funding for banks dries up.

Westpac yesterday reported a tax-paid profit of $484 million for the year to September 30, up 6 per cent.

Acting chief executive Bruce McLachlan said the Reserve Bank credit facility would form part of the funding mix from a range of sources. He was not concerned that using the back-stop facility would send a message to the market that funding was running out.

Using the facility would signal that banks could manage their way through the immediate period without any funding or liquidity concerns, he said.

In May, the Reserve Bank offered to accept residential mortgage-backed securities from banks as collateral for cash to provide them with an additional funding option.

The facility was designed in case the global credit markets deteriorated further and banks found it harder to access cash.

At the time, the Reserve Bank considered the likelihood of the facility being drawn on was "extremely low". Westpac and ANZ National became the first to put a facility in place last week.

Westpac also had substantial undrawn credit lines available from its Australian parent, as well as sizeable liquid securities, Mr McLachlan said. "No one can predict what is going to happen over the next three months, but I would like to use it modestly."

Westpac had "reasonable sums of offshore funding falling due over the next few months," he said.

"If markets stay closed for long enough then that is going to have downstream impacts, but we are not concerned in the short term."

A wholesale funding guarantee would also then be needed to ensure banks could compete for limited international funding, Mr McLachlan said.

Westpac has more than doubled its provisioning for bad and doubtful debt to $170 million as households came under pressure from higher living costs.

Mr McLachlan said impairments were coming off unusual lows across the banks.

"What we have seen is a natural outcome of an economy that is in recession and that has been in recession for virtually all of 2008."

At the end of September the number of mortgage borrowers more than 90 days behind on payments had increased to 0.47 per cent of customers, from 0.2 per cent at the start of the year.

More staff had been assigned to deal with distressed customers. The number of customers in the "recovery unit" had remained relatively stable at about 600 in recent months.

Impairments would remain at current levels into next year and possibly 2010 as the effects of the recession flowed through to consumers, Mr McLachlan said.

Growth in consumer lending has slowed to 7 per cent, impacted by lower demand for mortgages in the second half. Business lending was up 15 per cent, driven particularly by the agriculture sector.

Westpac had not experienced any material outflow of deposits to finance companies offering higher rates and the prospect of a government guarantee.

- © Fairfax NZ News