Westpac Banking Corporation chief executive Gail Kelly says business credit demand is likely to pick up in the middle of the year and could rebound quite quickly.
The major banks have had a long wait for business lending to pick up after the global financial crisis, and the Queensland floods are just the latest setback to consumer and business confidence.
Mrs Kelly on Tuesday offered the most definitive outlook for business credit demand from any of the big four banks.
"The up-tick in business credit, while not in evidence yet, will come, probably in the second half (of fiscal 2011), and we are well placed for that," she told analysts during a first quarter trading update. "When it happens, it could happen quite quickly."
Reconstruction from Queensland's floods will eventually provide impetus for business investment, she said, a similar view as those aired by Commonwealth Bank of Australia Ltd's Ralph Norris and National Australia Bank Ltd's Cameron Clyne in the last week. Westpac posted unaudited first quarter cash earnings of approximately $1.55 billion, down from $1.6 billion in the previous corresponding period.
Australia's second biggest lender said the first quarter result was a five per cent increase on the average cash earnings of the third and fourth quarters of fiscal 2010.
Westpac's operating income in the three months to December 31 grew two per cent over the preceding two quarters, and the net interest margin increased three basis points to 2.2 per cent.
Morningstar analyst David Ellis said further margin growth was likely in the remainder of fiscal 2011.
"With the home laon re-pricing in November, that will obviously help further," he said.
"Also pressure on term deposit spreads seems to be easing a little bit, and the large increase in customer deposits has eased the pressure on their wholesale funding requirement for 2011."
Westpac grew customer deposits by $8 billion in the quarter, with growth across all segments. Wholesale funding costs are still rising, but like Westpac's competitors, they were stabilising, Mrs Kelly said as she forecast lower costs by 2013.
"Looking forward to 2012, we may start to see some stabilisation there," she said.
"Obviously we've got a big chunk of maturities coming through that we put on in 2009, and clearly we are hoping to replace that with cheaper funds at that time.
"I'm really looking forward to something like 2013 and 2014, because we've got the five-year money that we put in in 2009 and that rolls off, and that was very expensive money at the time.
"Then you'll see quite a significant reduction in costs and it will be great to pass some of that benefit on to customers." Westpac's total lending increased 0.3 per cent in the first quarter as growth in mortgages was offset by declines in loans to institutions and large corporates.
However, interest rate rises in November and consumer caution led to softer mortgage demand in the quarter, Ms Kelly said. Westpac still expected to grow its mortgage lending in line with system growth of about seven per cent for the full year, she said. Asset quality continued to improve, with impairment charges falling to about $280 million for the quarter.
The bank said its Tier 1 capital ratio increased slightly to 9.2 per cent as of December 31, boosted by profits generated by the bank. Shares in the big four banks all fell, but Westpac was the best performer, down 11 cents, or 0.45 per cent, to close at $24.31.
Share
