Prime Minister Adds Voice To Growing Criticism Over Westpac Rate Decision

Post by Sharat on December 10, 2009 · Under Australian Economy, Business News, Company News, banking, home loans, interest rates, mortgages · Comment 

Australian banking major Westpac is facing intense pressure from politicians as a result of its decision to increase its standard variable mortgage rate by nearly double the rate increase enacted by the Australian central bank.

Westpac executive are now quietly admitting that the lender has suffered a reputational hit as a result of the lenders interest rate hike.

Australian Prime Minister Kevin Rudd added his voice to the growing criticism on Wednesday, saying Westpac’s decision to raise its interest rates by 45 basis points was a bad move for its customers in the lead in to Christmas.

“I think Westpac should have a long hard look at itself, they are talking about people’s most basic things in life, a mortgage, an affordable mortgage, to underpin things as basic as a home.” Mr. Rudd said.

Mr. Rudd’s  criticism comes after Treasurer Wayne Swan suggested last week, that lenders who increase their interest rates out of synch with hikes by the central bank encouraged community “distrust”.

Westpac is said to have been in close communication with the government over the last couple of weeks, and in particular with the both the Treasury, and Mr. Swan’s office, regarding the increased cost of funding the lender faces in the coming year.

Westpac’s chairman Ted Evans, who himself is a former head of the Treasury has been briefing the banks most important institutional investors over the last week as a result of rumours that have been circulating which suggest the rate hike was masking a deeper underlying problem at the bank.

Mr. Evans has been arguing the seriousness of funding pressures was not exclusive to Westpac and an issue that all major banks face, and that the market had failed to interpret its signal correctly.

Westpac’s public relations crisis intensified on Wednesday after it emerged that the lender had produced an animated training video that likened its funding cost pressure with the cost of banana smoothies after a cyclone.

Westpac issued a clarification saying that the video was for training purposes and used to educate staff on how to explain rising funding costs to irate customers, with the lenders former head of retail and business banking Peter Hanlon conceding that the 3.25 minute video was condescending towards the lenders mortgage customers.

Westpac refused to confirm whether chief executive Gail Kelly was aware of the video’s existence.

Mr. Hanlon, whose role has changed after the lender undertook a management shake-up, which some analysts suggest was a result of the maelstrom, said that Westpac was acutely aware that it would come in for criticism for its decision.

“We expected that customers would not be happy that their loan costs have increased. It would be wrong to say that everyone was happy with our explanation. We understand that the increase in pricing, be it on mortgages or any other product, it puts pressure on households and families, we think about that very carefully.” He said.

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