McGrath told the Herald that the bank’s data and modelling suggested the economy was heading for a more challenging period, and that it had raised its net impairment charge to $154m (from a $10m impairment benefit a year earlier) accordingly.
The bank was already seeing a number of customers where the financial strain was starting to show through, McGrath said.
She urged customers who were starting to worry about cash flow to contact the bank “because the sooner we can talk to people, the more tools we can have at our disposal.
“What we’re saying to people is to start to think about your cost of borrowing and start to think about whether your outgoings are going out faster than your ingoings.”
Westpac was contacting 1600 customers a month - people identified by the bank’s modelling - when they see cash flow is getting tight.
“What we all need to recognise is that while inflation has come off its peak - it’s still higher than most people have seen before.
“We have seen (official) interest rates go up to a level that I haven’t seen before, and we expect one more rate rise.
“So the combination of those things means that we still have trickier times ahead,” she said.
Westpac’s net interest margin - a broad measure of a bank’s performance - came to 2.10 per cent, up 14 basis points, but below some of its peers and lower than pre-Covid levels.
In response to commentary about bank profits being too high, McGrath said: “As a sector and as a bank I accept that we have a robust level of profit.
“And if I look at going into more difficult times, having banks that are profitable and well capitalised is incredibly important to make sure that they have the resilience to support customers through the economic cycle,” she said.
In its result, Westpac said excluding the sale of Westpac Life and other notable items, its net profit was down 15 per cent compared with the same period last year.
There had been positive momentum during the reporting period.
McGrath said there was not yet clarity about several key issues for homeowners and businesses severely impacted by Cyclone Gabrielle and flooding in the North Island.
“As soon as the outlook is clearer, we will be able to work with our customers to agree the best way we can support them over the longer term. Due to the current uncertainty, we have made a weather event impairment overlay.”
Westpac economists, and several others, are forecasting a recession this year.
“The global outlook remains uncertain and funding markets are moving around,” she said.
“In addition, inflation and consumer spending remain high, increasing the risks of a hard landing.”
The group declared a dividend up A70c, fully franked, up 15 per cent.
The Westpac group’s return on equity jumped 205 basis points to 11.3 per cent.
Group chief executive Peter King said the first half result reflected the progress made “in becoming a simpler, stronger bank.
“Disciplined cost and margin management has lifted our return on equity and allowed us to increase dividends to A70 cents per share,” he said.
“We’ve grown in a disciplined way in mortgages, performed well in business and institutional banking and stayed the course on risk management and simplification.
“Our balance sheet strength sees us well positioned to support customers to grow and navigate any future economic challenges,” he said.
“Many customers are adjusting to repayment increases and we’re ready to help those who need time to transition.”
