Westpac launches new, invitation-only American Express credit cards (Credit: Executive Traveler)

Westpac Banking Corp (ASX:WBC) opened the trading day today firmly holding a higher position as it maintains it’s 52-week high on the ASX, growing 0.6% at $30.04 per share. Rebounding strongly since the Banking Royal Commission findings in early February of this year, this outlook comes as the banking sector rallies off positive market conditions across the broader ASX, and investor confidence returns in light of optimistic sentiments towards the household lending sector.

Westpac Banking Corp, is one of Australia’s leading ‘Big Four’ banks and financial-service providers and the oldest banking institution in Australia. In recent years, it has also endeavored to become Australia’s largest lender for personal and business needs with respect to short term credit and home loan mortgages. In a bid to restore confidence in light of the Royal Commission scrutiny, and to deliver long-term shareholder growth, Westpac Banking Corp currently yields a 6.3% per annum dividend.

Recent announcements from Westpac Banking Corp to reduce its mortgage serviceability buffer from 5.75% to 5.35% on 30 September, has created a new floor amongst its peers for serviceability rates, in what investors have speculated as an undercutting strategy. The possible implications from this announcement suggests that Westpac Banking Corp may be seeking to boost it’s market share in the lucrative lending market.

The serviceability buffer is intended to assess whether potential borrowers could afford to service the aforementioned loan, given their assessible income and expenses at the time of the borrowing, the lowering of this buffer infers that a bank could potentially take on more lending than its peers. In which case, Westpac Banking Corp would be looking to turn greater profits in the coming year by increasing their net interest (profit) spread, at the trade-off of increasing its risk portfolio.

This is the second cut to serviceability rates since mid this year, where rates were slashed from 7.25% to 5.75%. This announcement, in conjunction with the lowering of the official cash rate from the Reserve Bank of Australia, and the subsequent flow on to borrowers, has renewed investor interest in the banking sector.

 

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September 27, 2019