Westpac calculates up to 2.5 percent higher interest rates on loans to stress test customers: George Frazis

Westpac, the country's second largest lender, was just trying to make sure that customers are not in too much debt when interest rates rise as part of its focus on responsible lending, according to the chief executive of Westpac Consumer Bank.

George Frazis aired his views on Ross Greenwood’s show on 2GB.

To a question on banks conducting stress tests in the eventuality of a rise in interest rates, Frazis said Westpac’s focus was that the bank was doing the right thing by the customers.

He said when assessing a customer’s affordability of a home loan application, “we add in the order of 2 to 2.5 percent interest rate increase on that loan to make sure you are able to withstand that”.

There’s other checks and balances as well “to ensure you are able to afford that… because what we want to do is to ensure that customers are able to keep their home and continue servicing the home loan and paying off the home loan over the life of the home loan”.

So it was in the customers interest and the bank’s interest to ensure that customers are not in too much debt.

On whether mortgage brokers were being diligent in doing those checks and balances for home loan applications, Frazis said when it comes to serviceability (of loans) the banks double check the analysis to ensure that the customer can afford that.

He said the bank verifies a customer’s income level to make sure it's correct.