Something doesn’t quite gel about the interpretation offered by
Westpac’s management of their sales performance, the outlook for the
economy and credit quality, and the composition of the bank’s profit
for the half year to March 2005.

The key theme promoted by Westpac managing director David Morgan
is that the bank, by choice, will continue to adopt a more conservative
approach toward lending in consumer markets and business markets, an
approach evident in the bank’s loss of market share in home lending and
unsecured consumer loans over the last 12 to 18 months.

On the other hand, Morgan thinks demand in the economy is
exceptionally strong. He prefers employment as the better economic
indicator (which is still very strong) over other indicators (such as
retail sales) which have been soft for many months.

Morgan frets about inflation, and believes the Reserve Bank of
Australia ought to raise interest rates again, and should have done so
much earlier.

Asked about the wave of profit warnings by ASX-listed companies,
the anecdotal commentary by mercantile agencies and credit insurance
companies about adverse trends in collections, and the string of
voluntary administrations and receiverships that have characterised the
first few months of the year, Morgan really brushed the significance of
these trends aside. “I expect a modest slowing and nothing more than
that, Re the forward indicators of credit quality, we’ve seen nothing
internally that presages any deterioration in credit quality.

Westpac is determined, Morgan said, “to go into the next downturn
second to none in terms of the position of the banks and the level of
provisioning, and I’m very confident we will have that positioning.”

But his bank is still not willing to lend as aggressively as
virtually all other retail banks in Australia in the consumer credit
demand tied to an economic forecast in which the rate of growth is
simply easing (and slowly), but one at which the rate of growth in
credit remains in line with long term averages.

Peter Fray

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