Westpac’s mortgage business has been hit by the combined impact of serious problems with application processing and a deterioration in the credit quality of the portfolio. The bank is working on a system fix to address the processing issue but the turnaround will not be quick.

In the Australian consumer division, net loans fell by 2 per cent, or A$9.5 billion, to $389.8 billion over the year. Mortgage balances fell by $6.2 billion to $382.4 billion and personal lending fell 2.8 billion to $9.3 billion.

The bank said this was due in part to customers reducing spending and paying off debt as a response to COVID-19. In the mortgage portfolio the decline was concentrated in investment lending runoff, particularly interest-only, with owner occupier lending rising 2 per cent over the year.

It was also due to problems with mortgage processing. Westpac operates a mortgage centre in Adelaide and one in India. Offshore processing has been disrupted by the pandemic.

And there were issues with credit settings, as the bank was increasingly cautious in its response to the pandemic.

On the credit quality side, the proportion of delinquent mortgages (with payments overdue by 90 days or more) rose 68 basis points to 150 bps.

Business loan balances fell 4 per cent to $140.7 billion and delinquencies on business loans backed by mortgages rose from 84 bps to 172 bps.

Westpac chief financial officer Michael Rowland said the bank’s “time to write” is too slow. Brokers and borrowers expect to get a loan approved in two days, and Westpac does not meet that standard.

Rowland said overall demand for business loans would be down in 2021. He is aiming to get the bank back to growth in mortgages by the second half of the current financial year.