Westpac reported its credit impairment charge for the first half of FY 2024/25 has hit a likely low point in its lending cycle.
The bank booked a charge of 6 basis points of average loans, down from 9 basis points in the comparable reporting period last year. Households are proving resilient and levels of business stress remain low, according to Westpac's commentary.
"This resilience is reflected in the improvement in credit quality metrics indicating we may have passed the low point in the cycle. Mortgage delinquencies and impairment charges remain low," as Anthony Miller, Westpac's chief executive officer noted in the bank's 1H25 results announcement to the ASX.
In its results announcement to the ASX, Westpac stated: "We remain appropriately provisioned with credit impairment provisions of A$5,072 million, $1.7 billion above the expected losses of our base case economic scenario.
The bank stated that the improvements in its credit quality metrics reflect the decrease in 90+ day mortgage delinquencies and an improvement in individual customer circumstances. Stressed exposures to total committed exposures were 1.36 per cent, a reduction of 9 basis points over the previous half year, and in line with the metric for the first half of the 2023/24 year.
The group reported its credit impairment provisions of $5.07 billion were stable with the reduction in collectively assessed provisions offset by higher individually assessed provisions. The ratio of CAPs to credit risk weighted assets was 1.26 per cent, a decrease of 4 basis points.
Total impairment provisions rose only 1.2 per cent, reflecting reduced expectations of loan defaults.
Westpac's reported results are in line with analysis from Fitch Ratings a month ago, when the ratings agency said it expected Westpac's asset quality "to weaken modestly in FY25 but improve in FY26".
The trends for impairments and provisions reported by Westpac were also broadly in line with new data from Equifax which showed consumer credit demand rebounding – but not without signs of financial strain.
In the March 2025 quarter, Equifax recorded a 5.2 per cent year-on-year increase in mortgage demand, largely driven by refinancing activity. Equifax noted that refinancing accounted for 37 per cent of all mortgage applications in March 2025. This uptick follows the recent RBA rate cut, with more cuts expected in the coming months.
Buy Now Pay Later demand also surged in the March 2025 quarter, jumping 17.8 per cent year-on-year, while credit card applications rose slightly (an increase of 0.4 per cent over the result from the March 2024 quarter).
But despite this renewed appetite for credit, Australians are increasingly struggling to manage repayments, as holiday spending begins to catch up on consumers, Equifax observed.
The dollar amount of 90+ day mortgage arrears rose 9.2 per cent, suggesting households with larger loans are feeling the pinch. "For the first time on record, mortgage loans exceeding $1 million are displaying higher arrears rates compared to all other loan size segments," said Kevin James, chief solution officer at Equifax.
The total value of accounts 90+ days past due increased for credit cards (up 19.3%), personal loans (up 18.7%) and auto loans (a rise of 7.1 per cent), compared to this time last year, Equifax reported.