WIB under pressure

An increased appetite for corporate lending from reinvigorated banks in the northern hemisphere may put a brake on returns for wholesale banks in Australia.

Rob Whitfield, group executive for Westpac Institutional Bank, told Friday's investor briefing that "we are seeing pressure on the margin and I think you need to break it down to both sides of the balance sheet."

WIB's interest margins fell nine basis points over the half, against the trend for the Westpac group.

"We're seeing pressure across most of the [lending] product and it's coming from two sources," Whitfield said.

"The first is demand has been subdued. So, clearly, [there was] low credit growth in Australia and softer credit growth than we expected in Asia.

"And you add that or couple that with the wall of liquidity that we've been speaking to, and with the [central banks] adding sufficient liquidity, there is [only] so much cash, and banks, internationally and domestically, are competing for those assets very aggressively.

"So, there's the competition side playing through.

"On the liability side, it's more of a domestic story, and we're seeing strong competition from all the domestic banks [who are] chasing Basel III compliant deposits very sensibly.

"In terms of how we position for that, it goes really to the strength of our strategy. I mean really the deepening customer relationships, and our strong risk management disciplines that really play into this part of the cycle for us."

Westpac Institutional Bank reported a rise of 10 per cent in cash earnings, to A$813 million, in the first half, largely due to write-backs on previously troubled loans.