War hits home for big Aussie bank as confidence slumps
Australia’s second-largest bank has warned that conflict in the Middle East is creating difficulties for customers as confidence falls to its worst level since the pandemic.
Westpac, which will publish first half results seven days before federal Treasurer Jim Chalmers announces his next budget, released its latest survey on how Australians are feeling on Tuesday.
The Westpac-Melbourne Institute consumer sentiment index fell by 12.5 percent in April to 80.1 points, due to the rise in fuel prices and the rise in interest rates.
This was the survey’s worst monthly decline since the start of the Covid-19 pandemic and left the index near historical lows.
At the same time, the bank, which announced its results on May 5, reported that the conflict had damaged the earnings contributions of one of its internal businesses.
Lower revenue from the treasury and markets division, driven by volatility, means its net interest margin contribution will fall from 15 basis points in the first quarter to seven basis points in the second quarter of fiscal 2026.
Conflicts in the Middle East, which are in their seventh week, started with the US attack on Iran on February 28.
Since then, financial markets have become unstable as the price of crude oil has risen from around US$70 per barrel before the war to well over US$100; This has led to rising domestic oil prices and concerns about fuel supplies.
“The supply shock resulting from energy market disruption is expected to lead to higher inflation and higher interest rates, while the expected slowdown in economic growth will create a more challenging environment for some customers,” Westpac told the Australian stock exchange.
ANZ bank economists on Tuesday raised price expectations for a barrel of oil to above US$90 for the rest of the year, from US$80 previously.
While Westpac said it was well positioned to support customers amid ongoing uncertainty, it also signaled its net profit would fall by $75 million.
This was because Pepper Money was a “major item” in its RAMS mortgage business, which it sold to KKR and PIMCO. The sale will be completed in the second half of the fiscal year.
According to analysts, the bank is currently expected to post a net profit of approximately $3.6 billion in the first half; This will be a slight improvement over the previous half.
Westpac shares fell nearly two per cent to $41.64 in morning trade.
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