Westpac is avoiding the tightening of the interest rate margin for the time being

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The net interest margin – the difference between interest earned on loans and investment assets and the cost of seeking funding from depositors and the financial markets – is a key measure of profitability.

But banks have fought against the fact that more deposit rates are close to the zero limit and therefore cannot be lowered to compensate for any reduction in lending rates.

Westpac CFO Michael Rowland also warned analysts the bank is unlikely to match the margin profits it achieved in the first half of the year as official interest rates remain pegged near zero.

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“We will continue to be competitive, but we also recognize that clients need interest on their deposits,” Rowland told analysts.

“It’s a compromise we have to make between managing the margin and delivering a good customer proposition.”

Citi analysts said Westpac has traditionally been more reliant on wholesale funding than deposits, which have weighed on margins. However, the bank’s ambitious cost-cutting campaign did “improve earnings forecasts”.

Mr King said that in addition to deposit limits, margins would also be tested by increased competition for loans and the pressure to re-evaluate existing back book loans in line with front rates. book offered to new customers.

However, banks have benefited from access to the Reserve Bank’s term finance facility, in which they can borrow from the central bank at a rate of 0.1 percentage point per year for only three years.

Mr Rowland said Westpac could access $ 12 billion in term financing by the end of June and intends to do so, bringing the total amount borrowed to $ 30 billion.

Over time, as TFF funds are refinanced, banks could also face some pressure on margins as they replace cheap money with more expensive wholesale funding.

Australian banks are eligible to access approximately $ 190 billion in TFF liquidity in total. So far, $ 97.9 billion has been drawn with nine weeks remaining before access was closed.

With banks set to resume their entire allocation of cheap funds, they will be pulling more than $ 10 billion a week by June 30 – what Curve Securities has described as an impending “liquidity tsunami”.

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