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Key points
- Westpac is the first major bank to raise its interest rate in 2022
- Its fixed rate is increased by up to 0.20% for owner-occupiers and investors
- Brokers think Westpac stock price can benefit from rising rates
the Westpac Banking Corp. (ASX:WBC) Share price is in focus after the big four banks moved to raise interest rates again.
Westpac and its other major peers – Commonwealth Bank of Australia (ASX:ABC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX:NAB) – have raised interest rates.
But Westpac decided to act first and raise its interest rate first in 2022.
How much did Westpac raise the interest rate?
According to information from Ratecity.com.au, Westpac has decided to raise its fixed interest rate to 0.20%. The increases affected both owner-occupiers and investors. It apparently includes all Westpac divisions, including Bank of St George, Bank of Melbourne and BankSA.
Different periods of loan duration saw different increases.
The one-year fixed rate increased by 5 basis points from 2.34% to 2.39%, the two-year fixed rate increased by 10 basis points from 2.49% to 2 .59%, the three-year fixed rate increased by 15 basis points to 3.04%, the four-year fixed rate increased by 15 basis points to 3.34% and the five-year fixed rate increased increased by 20 basis points to 3.59%.
Why has the interest rate increased?
Ratecity explained that Westpac decided to raise the interest rate due to the rising cost of fixed-rate funding and expectations that the US Federal Reserve would raise interest rates “faster and more aggressively” than we never thought before.
The financial site expects many more lenders to raise interest rates this year.
Ratecity Director of Research Sally Tindall said:
Westpac is the first major bank to raise fixed rates in 2022, but certainly won’t be the last.
The cost of fixed-term funding is rising, with US inflation hitting its fastest pace in nearly four decades.
We expect other banks to follow within days due to sharp increases in the cost of wholesale funding.
Mortgage holders who have been lucky enough to lock in a record fixed rate over the past two years are sheltered from these hikes, but only for the duration of their fixed rate tenure.
Anyone who stared at the start of the pandemic for two years should start thinking about what their next step might be. When they leave their fixed rate, they will look to a very different market.
What could this mean for Westpac’s Net Interest Margin (NIM)?
When Westpac released its FY21 results, it said its margins were in question in a competitive, low-rate environment.
Margins were squeezed to attract and retain customers. It was also impacted by the composition of the portfolio – with more people choosing lower cost fixed rate loans.
In terms of outlook, data in November 2021, she said loan growth should be solid as the economy rebounds, although net interest margins would come under pressure from low interest rates and the competetion.
However, with banks rapidly raising their rates, it will be interesting to see how this affects rising wholesale costs.
Westpac Stock Price Ranking
One of the last brokers to have a say in Westpac was Morgan Stanley. It currently rates the bank as a reserve/“equal weight” with a price target of $22.70. He thinks higher interest rates could be positive for Westpac.
