Westpac braces for fuel shock with higher loss buffers, flags $75m RAMS hit
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The news: Big four lender Westpac has revised its economic outlook due to the initial impacts of the Middle East conflict and increased its credit provisions for the first-half period to cover potential future losses.
The numbers: Westpac said the increase in credit provisions is expected to result in the ratio of collectively assessed provisions (CAP) to credit risk-weighted assets (RWA) is rising to 129 basis points, and a credit impairment charge of 10 basis points of average gross loans.
The bank said interest rate volatility has impacted its treasury and markets net interest margin, which contributed seven basis points in the Q2 compared to 15 basis points in Q1.
It also noted that foreign currency translation from the 6% depreciation in the New Zealand dollar average exchange rate has impacted both revenue and costs during the quarter.
The context: Westpac said its revised economic outlook has been reflected in its base case provision scenario and a new portfolio overlay has been added for energy intensive sectors.
The bank will report its half-year results on 5 May.
Elsewhere, Westpac said the sale of its RAMS mortgage portfolio to a consortium of Pepper Money, KKR and PIMCO remains on track for completion in the second half.
The first-half result will include a notable item related to the transaction costs for the sale, reducing reported net profit after tax by $75 million.
What they said: “With the supply shock from the energy market disruption expected to result in higher inflation and higher interest rates, an expected slowing in economic growth will create a more challenging environment for some customers,” the company said.
The source: ASX
