Westpac's $30b Adds Liquidity To Lending

Sydney Morning Herald

Wednesday February 6, 2008

Danny John

WESTPAC has underlined the "dash for cash" needed to keep credit markets from seizing up amid the global liquidity crisis by disclosing yesterday that it has $30 billion to meet corporate borrowing demands.

In another sign that more customers are turning to the major banks for funding after the effective shutdown of once cheaper global debt markets, Westpac said it was holding significantly more liquidity than normal to help support new and existing customers.

The bank also sought to calm its own investors that are worried about the impact of the credit crisis on its results by indicating that it had so far suffered no material losses.

However, in an investor briefing issued just three days into the reign of the new chief executive, Gail Kelly, Westpac said higher funding costs incurred as a result of its own need to borrow money in global markets would put an $85 million dampener on its first-half pre-tax profit figures, due for release on May 1.

Nonetheless, the bank expects to recoup a large amount of that $85 million on margins earned from increased lending to customers who have found it harder to borrow money at reasonable interest rates from other financial sources.

Like its main competitors, Westpac has passed on some of its additional costs to millions of mortgage holders whose home-loan repayments went up last month by another 0.15 per cent. Yesterday the Reserve Bank sanctioned another rate increase of 0.25 per cent.

As for the property lending crisis that has claimed the scalps of shopping centre owner Centro Properties and investment group MFS, Westpac indicated it had $8 billion of loans made to players in the sector but was "comfortable" with its portfolio.

It also has just less than $5 billion tied up in its margin lending portfolio, which has been advanced to customers to buy shares.

About 3 per cent of accounts - amounting to 1100 margin calls - have since been asked to repay money or invest more cash because of the impact of falling stockmarkets.

More than $500 million is tied up in 50 individual accounts, of which only one is being actively policed by the bank, it added. Westpac's shares lost 34c yesterday to close at $25.90.

© 2008 Sydney Morning Herald

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