Leigh Sales slams Westpac CEO: “Your latest profit was $4.2 billion, can’t you use that?”
Yesterday, Westpac announced that they will be the first of the Big Four banks to increase its variable home loan rates, a move that is expected to be copied by the other financial institutions.
In a statement, the bank said its rates would be raised by 0.14 per cent from September 19, saying that the price hike is due to an increase in its wholesale funding costs.
However, Westpac made a profit of $4.2 billion, so 7:30 host Leigh Sales questioned why the bank couldn’t put that money towards the increasing costs.
Westpac CEO Brian Hartzer attempted to defend his decision, explaining why the cost had to be passed on to customers rather than decreasing the bank's profit.
“This is a difficult decision. Any time we are affecting people’s cost of living, it is something that we take very seriously but we borrow the money to fund people’s home loans and the cost has gone up,” Mr Hartzer said.
A family with a $300,000 home loan will soon be paying an extra $35 in interest per month, while Aussies with a $500,000 home loan will be forking out an extra $516 a year on interest.
Sales put the figures to Mr Hartzer and asked: “An ordinary household has to work within their budget to pay the extra money on their mortgage yet one of the wealthiest institutions can’t do the same?”
Mr Hartzer said Westpac had worn the cost for the past six months, hoping it would go down but “we sadly had to conclude this is a more permanent change or certainly it is going to persist for a little while”.
Despite the bank’s last profit being up six per cent, Mr Hartzer said the margin has been “significantly impacted” since costs started to rise in February.
“Part of my job sometimes is to make difficult decisions that are about the long-term sustainability of our business and that involves addressing increases in funding costs,” Mr Hartzer said.
While the CEO said he understood customers “frustration” with the interest rate hike, he said: “At the same time, Leigh, we have to run our business and part of that is to acknowledge the realities of higher funding costs.”
The higher interest rates will come into effect on September 9 for all new and existing customers for Westpac and Westpac-owned St George.
Westpac said it variable mortgage rate for owner-occupier properties will increase to 5.38 per cent per annum for customers with principal and interest repayments, while residential investment properties will be hit with an interest rate of 5.93 per cent.
“Customers wanting to switch from a variable interest only loan to the lower rate principal and interest loan can do so without any penalty or fee,” the bank said.
RateCity research director Sally Tindall said Westpac had prolonged their rate hike for longer than the market expected.
“Westpac has today asked their variable rate home loan customers to help ease their cost of funding pressures,” Ms Tindall said.
“While banks are entitled to make a profit, some Westpac home loan customers will be disappointed with the bank’s decision to increase their interest rate.
“Most households will be able to absorb the rate hike, however, anyone who overstretched to get in the market will feel burdened by this extra cost.
“Now that Westpac has hiked, taking the brunt of the bad PR, we expect the other three banks to follow suit.
“If your lender hikes your interest rate, it’s the perfect time to start considering your options.
“Ironically the banks are desperately seeking out customers to boost their lagging profit margins. They’re doing this by offering rock-bottom rates, but only to new customers so if you’ve got a bit of equity in your home, now is a great time to consider refinancing,” she said.
What do you think of Westpac boss Brian Hartzer's explanation? Let us know in the comments below.