Small rise in the demand for home loans in NSW, but national demand remains quiet: Westpac's Gail Kelly

Any hopes of an out-of-line home loan rate reduction by Westpac have been dampened after weekend comments by the Westpac Banking chief executive, Gail Kelly on the recent spike in bank borrowings costs.

She warned the global financial crisis was "enormous in its impact" and was yet to "play through" entirely.

"So we’ve probably got a few more years of volatility to weather,” Gail Kelly told the Financial Review Sunday.

Gail Kelly suggested there may be further offical RBA rate cuts ahead.

“We still have an opportunity to lower interest rates should that be necessary to further stimulate growth, and we think there probably will be a further rate reduction over the foreseeable future over the balance of this year.”

“I think in some respects we could have done better over the course of the past few years, but our economy remains fundamentally robust,” said Gail Kelly.

She noted Westpac had noticed a small rise in the demand for loans in New South Wales, although the national demand for mortgages remains quiet.

“Here in NSW there has been a small pick up in housing and house prices,” she said.

“There is a tiny, small pick up in some sectors around Australia in housing, which is pleasing to see,” said Gail Kelly.

Westpac has had the highest standard variable rate among the four big banks for over a year. So consequently the bank has in recent time been growing its mortgage book below that of its competitors.

“Remember in 2009 we picked up a full 2 percentage points of market share at that point,” Kelly said.

“In the years after that I indicated I was happy to grow a little under system when system is so low because we needed to manage our overall funding profile and we were very keen to grow our deposits.

"Across our brands from an aggregate point of view we are happy to grow at about 0.8 or 0.9 system.”

Analysts at Credit Suisse and Nomura have noted concerns about Westpac’s loss in market share, however others analysts have noted the bank was benefiting from the higher interest margins.

Gail Kelly noted the low credit growth environment was forcing banks to compete for market share.

“On mortgages it is a competitive sector,” said Kelly.  The mortgage sector has become quite competitive after annual credit growth sits around 3%, well below the pre-GFC growth.

Her comments came after the ANZ Banking Group treasurer, Rick Moscati, said bank credit spreads had risen around 20 points following signals from the US Fed.

Gail Kelly said she expected more volatility in wholesale funding markets.

“People aren’t out there raising money through offshore wholesale funding opportunities because of the volatility and the expensive nature of that funding,” she said.

“Unfortunately it’s still a pretty volatile world out there."