Westpac has flagged higher debt provisions because of bad consumer loans in Western Australia and Queensland, which have been hit by the resources industry downturn.
The "pockets of stress" translate to a 10 per cent increase on the previous corresponding period in debt provisions, which equates to "around about a $25 million impact in terms of an increase in provisions", George Frazis, chief executive of Westpac's Consumer Bank said during the bank's market update on Thursday.
While some house price growth may ease back in some areas, at a macro level Westpac still believes that the underlying demand and fundamentals are strong, Mr Frazis said.
"But at a micro level, there are pockets of stress and we're primarily seeing this in Western Australia and Queensland. We are closely monitoring these, but I should say they are two states that Westpac is underweight," he said.
Chief financial officer Peter King also said the bank may need to increase debt provisions for five large corporate clients, but stopped short of naming them.
Westpac's admission came shortly after rival ANZ forecast a $100 million-plus increase in its debt provisions due to its exposure to the resources sector.
ANZ expects its group credit charge to rise well above the $800 million it recently forecast because of a small number of local and multinational resources-related exposures.
David Lindberg, CEO of Westpac's Commercial and Business Bank, played down the bank's commercial exposure to the embattled resources industry.
"I think its important to remember this isn't a new problem as we've had resource issues for a couple of years now," he said.
Westpac has around $90 billion in its Business Bank lending book, of which around $14 billion is in Western Australia.
Westpac's debt stress levels peaked at the end of last year at around 4.9 per cent, which was a bit too high, Mr Lindberg said. But that's now fallen to around 4.1 per cent.
That compares to debt stress levels of 3.6 per cent in New South Wales and 2.6 per cent in Victoria.
"Of course we've gone through some issues in WA, now those issues though are primarily around lacklustre growth, as opposed to any surprises that we're seeing in terms of credit because we have dealt through that," Mr Lindberg said.
Westpac CEO Brian Hartzer said business conditions are a little bit tougher now than they were in September.
Westpac also faces some loan woes in New Zealand because the local agriculture sector is hurting from its exposure to the sharp slump in dairy prices, Mr King said.
The bank earlier this month said it had seen an increase in stressed lending in its agriculture loan portfolio recently.
Westpac is scheduled to report its interim results on May 2.
