Why Westpac may struggle to gain mortgage market share

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    With outdated systems forcing it to spend rather than save, Westpac Banking Group is trailing its rivals according to a Reuters report. Westpac’s profit margins are also being impacted by record-low interest rates, investors said after the banking giant issued an earnings update.

    Westpac’s sprawling size, aging software and convoluted procedures have hurt the bank, leading to record fines for breaches of anti-money laundering laws and market-share losses in mortgages, Reuters reported. All of this has meant the bank has had to prioritise expensive restructuring and system upgrades instead of lending growth.

    While Westpac’s inexpensive stock makes it attractive to investors, few look for a quick price spike, considering the Reserve Bank has cut interest rates three times to aid post-COVID economic recovery – cuts which have eaten into the bank’s interest margins, according to Reuters.

    “The question the market is asking itself is: is it cheap enough yet?” Matthew Ryland, portfolio manager at Greencape Capital, told Reuters.

    Westpac has more than $900 billion in assets, and was for years Australia’s second-largest bank by market value. However, with its share price plummeting 28% since the breaches surfaced a year ago, it has been surpassed by National Australia Bank, according to Reuters.

    Westpac’s stock is now worth 0.89 times its book value – the second-lowest of the Big Four. The multiple for leader Commonwealth Bank of Australia, by contrast, is 1.7, Reuters reported.

    “Westpac had a terrible year, but there’s maybe some upside relative to the other banks,” Hugh Dive, chief investment officer at Atlas Funds Management, told Reuters.

    Westpac said at its annual earnings briefing that it was working to recover market share in mortgages. New management and a cost-focused strategy have also engendered hope of gradual revival, Reuters reported.

    “Westpac is 12 to 18 months behind peers in terms of getting a grip on its cost-out program,” Ryland told the news service.

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