Westpac’s Share Price Continues to Fall after $35 Million Penalty

Westpac Banking Corporation’s [ASX:WBC] share price continues to tumble, after the bank was hit with the biggest civil penalty awarded under the National Credit Act.

The investigation that commenced in March last year was due for a three week court trial yesterday. Although, the bank cut things short by admitting to breaching responsible lending obligations, and agreeing to pay a $35 million civil penalty.

At time of writing, Westpac’s share price is trading at $28.31, down 9.35% from the beginning of this year.

Details of the settlement

Westpac admitted to using the Household Expenditure Measure (HEM), instead of evaluating the customers’ actual expense information which was higher than the HEM, to calculate potential borrower’s capacity to repay a home loan.

This meant that Westpac was approving potential borrowers for loans that they were unable to repay without experiencing financial hardship.

The bank admitted that approximately 10,500 loans between December 2011 and March 2015 should not have been approved. Since then Westpac has confirmed that its processes have been changed and is confident that the loans in question were not unsuitable for customers.

In addition, Westpac admitted to not properly assessing whether interest-only customers could afford their mortgage once the interest-only period ended and principal interest payments had to be made.

Westpac has also agreed to pay a $35 million settlement with ASIC, for breaching the National Consumer Protection Act, subject to court approval.

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How is Westpac dealing with the situation?

Although the bank has admitted to breaching responsible lending obligations, they have ‘…not made admissions that any of its loans were unsuitable for customers at the time of their origination’.

As reported by ABC, George Frazis, Westpac’s head of consumer banking said:

From a credit quality perspective, loans approved under these circumstances have continued to perform similar to, or better, than the rest of the group’s home loan portfolio…

Nevertheless, Westpac has committed to proactively monitor the active loans and to provide tailored hardship assistance if necessary.

In addition, Westpac admitted to not properly assessing whether interest-only customers could afford their mortgage once the interest-only period ended and principal interest payments had to be made.

Westpac is not the only bank under scrutiny, APRA has tightened home lending standards across the board, which as ABC reports could reduce customers’ borrowing power by up to 42%.

ASIC Chair James Shipton commented on the settlement:

This is a very positive outcome and sends a strong regulatory message to industry that non-compliance with the responsible lending obligations will not be tolerated. Responsible lending in the home lending market is absolutely vital to consumers, banks and our economy.


Ryan Clarkson-Ledward,
For Markets & Money

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Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:

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