Westpac and BNZ home loan arrears top $400 million combined

Monday, 6 May 2024

When homeowners have missed 90 days of mortgage repayments, they are considered to be in really serious trouble.

Borrowers with $1.8 billion of Westpac’s $67.4b of home loans were behind in their repayments at the end of March, the bank’s latest half-year results showed.

Of those, borrowers with $283 million of home loans were behind by more than 90 days, a level at which they are considered non-performing as it is hard for the households servicing those loans to recover.

Westpac borrowers on another $296m of home loans were behind by less than 90 days repayments, but more than 30.

The bank, which reported an increased profit after unwinding some of its provisioning for loan losses after last year’s Cyclone Gabrielle, said the proportion of its home loans that were past due by 90 days or more rose to 0.47% at the end of March from 0.29% at the same time last year.

Westpac’s experience mirrors the Reserve Bank Te Putea Matua’s figures for the whole banking industry in its financial stability report released last week.

But the central bank forecast worse was to come as it expected non-performing mortgages to continue to grow throughout the rest of the year from their current 0.5% level to 0.7% across the entire banking industry.

The Reserve Bank Te Pūtea Matua is expecting more families to fall into serious arrears on their home loans.

The expected rise would come as people struggling to pay their mortgages exhausted their savings, and any other buffers they may have, the Reserve Bank said.

If the Reserve Bank’s forecast, which is based on the expectations of the big banks, proves to be accurate, by the end of the year as much as $2.5b of the more than $350b of home loans would have fallen into 90-day arrears.

“However, banks have reported to us that on average borrowers still have capacity to handle high debt servicing costs, either through reducing principal repayments or drawing on savings buffers,” the Reserve Bank said.

“Loan arrears and non-performing loans are around the levels experienced during the initial period of the Covid-19 pandemic and well below the levels following the Global Financial Crisis,” the Reserve Bank said.

But, it said: “Banks expect further increases in loan impairments while interest rates remain high and as economic activity slows.”

However, exactly how bad things get would depend on how economic activity and labour market panned out, the Reserve Bank said.

Westpac’s 90-day arrears were were nearly double the rate of those of Bank of New Zealand (BNZ), which reported last week that 0.24% of its home loans were 90 days or more in arrears at the end of March, equating to just over $140m of loans in dire trouble.

Westpac chief Catherine McGrath expects serious mortgage arrears to worsen before they improve.

ANZ will report its half-year profit on Tuesday.

Westpac chief executive Catherine McGrath would not comment on why there was such a difference between the two banks.

BNZ has a lower level of serious arrears amongst its borrowers than Westpac.

But, she said: “We have been focused on early and proactive outreach, contacting more than 51,000 home loan customers who were due to re-fix at higher interest rates in the past six months, as well as more than 1800 customers we identified as at most risk of financial stress.”

That’s something the Reserve Bank has noted, saying in the Financial Stability Report: “Banks report they are proactively identifying and contacting borrowers who may require assistance and offering them options to restructure their debt to manage pressures. It is encouraging that the increase in borrower stress is not accelerating.”

Dan Huggins, BNZ chief executive, said: “Our teams continue to proactively contact customers who we have identified as potentially needing additional support.”

“High interest rates and cost of living pressures continue to impact business and household finances,” Huggins said.

With rising job losses in the public service, the Public Service Association Te Pūkenga Here Tikanga Mahi has written to the Banking Association Te Rangapū Pēke to ask banks to be flexible and lenient when dealing with public service workers facing financial stress following redundancy.

“This is a time for banks to step up and do the right thing by their public service customers,” said Kerry Davies, national secretary for the PSA.

The Reserve Bank said mortgage arrears was worst for people with younger borrowers, and those who had locked in interest rates at the peak of the interest rate cycle.