King: Economy will bounce back, vaccines key

Michael Bennet
08:00am August 17 2021

Westpac CEO Peter King discusses the bank’s recent performance and the economy. (Josh Wall)

Westpac chief executive Peter King says the economy is primed for a solid bounce back once COVID restrictions ease, boding well for the bank’s loan books as customers navigate the lockdowns relatively well so far.

Speaking as the bank today released its third quarter update, Mr King said while economic activity was being held back by lockdowns, the fundamentals that drove the strong recovery over the past 12 or so months remained. Westpac’s economics team is tipping the economy will contract 2.6 per cent in the September quarter before rebounding 2.6 per cent in the following quarter and expanding 5 per cent in 2022.

“I'm certainly in the camp that activity will come back strongly when restrictions are reduced. And so, what that will mean…from a credit quality perspective is more of the same. It'll be pretty good,” Mr King told Westpac Wire. 

“We've got historically low interest rates in terms of the cost of debt in the economy, so that's good. We've got governments pumping in a lot of support. So, again, that's good for the economy. 

“And so longer term, if I think in 2022 or a little bit longer, certainly domestic activity will pick up as we've got less restrictions domestically, and then once we get the vaccination rates up to the levels that the government has talked about, I think it's 80 percent, then international activity will increase. So, I'm confident that we will see the bounce back in activity.” 

Mr King said Westpac’s balance sheet remained in “good shape”, reporting a CET1 capital ratio of 12 per cent in its third quarter update to June 30, well above APRA’s 10.5 per cent benchmark requirement. Westpac noted asset quality trends heading into the recent lockdowns were fairly benign, with stressed assets to total committed exposures down 9 basis points from March and mortgage 90-plus day delinquencies in Australia also 9 basis points lower to 1.11 per cent. The bank added that it had granted a “relatively small number of new repayment deferrals related to recent lockdowns”. 

Mr King said the bank was seeing a “little bit of stress in the business portfolio, but not a lot”, and mortgage deferrals had totalled about $1.6 billion so far, compared to $55bn at its peak last year. 

“Yes, it's up, but nowhere near what we were seeing in the first (lockdowns),” he said. 

“(And) in relation to customers, I'd just say if … you've got any troubles, please call us early. We've again reinstated deferrals and they come through our hardship processes. We've got some other new initiatives (too).” 

Meanwhile, Mr King said while the Forum Finance matter had been “disappointing”, he was pleased with the bank’s recent improved performance in mortgage and business lending in Australia, growing at the same rate as the broader system. 

“It's a big improvement from what we've seen over the last two years,” he said. 

“And then in our simplify priority, the asset sales simplification of our business portfolio is our priority there, and that's progressing well. So we've made progress on life insurance, on general insurance, so there's a number there that we've managed to announce and are looking forward to completing them.”
 

Michael Bennet

Michael Bennet was inaugural Editor of Westpac Wire from June 2017 to December 2021. He joined Westpac after more than 12 years in journalism, most recently at The Australian as the national newspaper’s banking reporter based in Sydney. Michael has worked at various News Corp publications and other media companies covering industries including financial services, resources, industrials, markets and economics. He is originally from Perth, Western Australia, where he also wrote across magazines covering the arts with a focus on music.

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