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UPDATE 2-Headwinds hitting capital at Australia's Westpac ahead of January deadline

Published 19/08/2019, 12:58 pm
© Reuters.  UPDATE 2-Headwinds hitting capital at Australia's Westpac ahead of January deadline
WBC
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* No. 2 bank says minimum capital levels under pressure

* Dividend cut on cards to meet capital requirement - analyst

* Westpac reports higher 90+ day delinquencies, repossessions (Recasts with capital detail)

By Paulina Duran

SYDNEY, Aug 19 (Reuters) - Australia's Westpac Banking Corp WBC.AX on Monday said the number of people missing mortgage payments was rising and its capital levels were under pressure, sparking concerns among some analysts about its ability to meet dividend expectations.

Australia's four biggest banks must maintain a minimum core capital ratio of 10.5% from Jan. 1, 2020. Westpac, the country's second-largest, and its smaller rival National Australia Bank NAB.AX are lagging Commonwealth Bank CBA.AX and Australia and New Zealand Banking Group ANZ.AX in meeting the requirement.

Westpac said its core capital ratio inched down to 10.5% at the end of the June quarter, exactly the level required by the Australian Prudential (LON:PRU) Regulation Authority (APRA) from January.

New accounting rules and an increase to its operational risk capital would reduce its capital ratio by 44 basis points in coming months, convincing analysts the bank must implement capital management initiatives to meet the deadline.

"It does reinforce our view that the (second half dividend) will likely be cut to support Westpac's efforts to meet APRA's 10.5% 'unquestionably strong' minimum" by Jan. 1, Goldman Sachs (NYSE:GS) analysts said in a note to clients.

Other possibilities could be asset sales, or dividend reinvestment plans offering discounts to investors who reinvest their dividend in shares rather than require cash payments.

Westpac also said 90-plus-day delinquencies, the overall percentage of loans that are about three months overdue, were up 8 basis points over the third quarter to 0.9%, amid a soft housing market. That was the highest level among Australia's top four lenders, which was also partly due to a higher portion of people now due to repay their loans rather than just paying interest. housing market has been under immense strain, with housing prices having fallen every month since late 2017. But encouraging signs of higher demand in June from Sydney and Melbourne have spurred hopes that things may be improving.

"Softness in property market contributing to an increase in the time it takes to sell a property have contributed to the rise in delinquencies and properties in possession," Westpac said in a statement.

Properties in possession now sit at 550, a jump of 68 over the quarter.

Many hope back-to-back rate cuts in the past couple of months may boost consumer sentiment across the housing market, which may also get a lift from recently passed tax cuts. assets rose in the third quarter by 10 basis points to 1.2%, the lender said in a limited third-quarter update.

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