Westpac warns finance sector growth to remain sluggish

Westpac has cautioned that growth across the Australian financial services sector will remain modest over the medium-term as consumers and business pay down debt and curb spending.
Nanjing Night Net

The slower pace of growth is part of a broader structural shift in the banking landscape, prompting banks to overhaul their businesses, the bank said.

‘‘The uncertainty and volatility created by the European sovereign crisis are contributing to more cautious customer behaviour and lower growth,’’ Westpac said in an update to shareholders released today.

The comments come as closely-watched credit growth figures released by the Reserve Bank show lending across Australia subdued during May, with mortgage lending mostly flat.

‘‘Businesses and consumers are more conservative in their approach with a preference for lower levels of gearing and increased saving activity,’’ said the update by chief executive Gail Kelly and chairman Lindsay Maxsted.

‘‘As a result, growth remains uneven and activity remains soft in those sectors that rely on consumer demand, non-commodity exports and tourism’’. However activity in mining and other related sectors remains solid.

Despite the caution, Westpac said Australia’s economic fundamentals remain sound with low unemployment, controlled inflation and low levels of government debt.

In a separate update to shareholders, rival bank ANZ said even in the face of softening global economic growth Australia and New Zealand remained well-placed while Asia continues to growth.

ANZ chairman John Morschel said his bank’s Asian focus was increasingly providing the bank with a competitive advantage. However he noted there was ‘‘significant pressure’’ on profit margins as a result of competition for deposits and higher long-term funding costs.

Westpac said it was directing efforts into investment sectors that are expected to generate higher growth and returns. That included pushing ahead with its retail strategy of multi-branding while building up its wealth management business.

Last month Westpac reported a 2 per cent increase in first half half cash earnings to $3.2 billion. ANZ’s first half cash profit was up 5 per cent $2.97 billion.

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