Westpac has welcomed the plunging dollar as a potential boost to confidence, as it revealed business loan activity has been weaker than expected.
Talk of growing business confidence since the federal election was not translating into a rise in loans, chief executive Gail Kelly said at the bank's annual general meeting.
A key factor holding back business confidence was a persistently high dollar, Ms Kelly said.
But on Friday the dollar hit a three-and-half-month low of 89.14 cents, after Reserve Bank Governor Glenn Stevens said he would prefer a lower dollar over lower interest rates as a mechanism to spur the economy.
He indicated he would like the currency to return to about 85 US cents.
Ms Kelly said a lower Australian dollar was a hugely valuable element for the bank's customers in the manufacturing, tourism and retail industries.
"It will help with confidence and activity," she said.
"It is a factor that actually offsets confidence and means that customers aren't willing yet to invest in the future."
Chairman Lindsay Maxsted said Westpac would have to lower its forecast of a rise in business lending in 2014 from three per cent to two per cent, based on activity in the past six weeks.
"A lot of people talk about things they might do so confidence is there in a sense," Mr Maxsted said.
"But actually putting their hand up and saying: yes I will invest, I do need some monies, I do need some borrowings, come see me; we're not seeing that."
Ms Kelly said she believed businesses wanted evidence that customers were spending more before investing in growth.
The bank still holds a positive outlook for the economy, predicting improved business and housing lending in 2014 due to a lower dollar and lower interest rates.
The biggest risks to its earnings are a volatile and uncertain global environment, and the enforcement of post-GFC regulations requiring banks to carry more capital to offset risk, Mr Maxsted said.
He took a swipe at Australia's regulators ahead of an inquiry into the financial system, suggesting local banks were being forced to increase capital reserves before international peers, which would cut shareholder returns.
Shareholders overwhelming passed the bank's remuneration report, having received a special dividend this year and enjoying a 20 per cent share price rise to date.
