WESTPAC’S senior leaders have cautioned that growth across the financial services sector will remain modest over the medium term as consumers and businesses pay down debt and curb spending.
The slower growth pace is part of a broader structural shift in the financial landscape, prompting banks to overhaul their businesses, they said.
”The uncertainty and volatility created by the European sovereign crisis are contributing to more cautious customer behaviour and lower growth,” the bank said in an update to shareholders released yesterday.
The comments came as closely-watched credit growth figures released by the Reserve Bank showed lending across Australia remained 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,” the joint update by the chief executive, Gail Kelly, and the chairman, Lindsay Maxsted, said.
”As a result, growth remains uneven and activity remains soft in those sectors that rely on consumer demand, non-commodity exports and tourism.” But activity in mining and other related sectors remained solid.
In a separate update to shareholders – also issued yesterday – rival ANZ said Australia and New Zealand remained well-placed even in the face of softening global economic growth.
Early signs of a recovery in business lending have appeared, with the Reserve Bank data showing loans to business growing for the third month in a row. Business lending is now more than 8 per cent on an annualised basis.
Despite the broader caution, Westpac said Australia’s economic fundamentals remained sound, with low unemployment, controlled inflation and low levels of government debt.
The ANZ chairman, John Morschel, said his bank’s Asian focus was providing it with a competitive advantage. But 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 were expected to generate higher growth and returns. That included pushing ahead with its retail strategy of multi-branding while building its wealth management business.
Analysts say banks can survive a period of slow credit growth as long as broader economic growth remains in place. But investors should prepare for a period of subdued returns.
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