“The inquiry is an important opportunity to put the facts on the table around mortgage pricing. Westpac will actively participate in this inquiry and believe the Australian community will benefit from increased transparency.
“Competition in Australian banking is intense. Australian and foreign banks – big and small – are competing fiercely for customers. Australian borrowers are benefiting from the lowest mortgage rates in 50 years.
“Pricing decisions require banks to take into account a number of factors, particularly as the cash rate heads towards zero. In particular we have to manage the net interest margin – that is the difference between deposit and lending rates. As part of this process we take into account the interest of borrowers, depositors and shareholders who provide the equity that enables us to operate.
“Banks also need to make a reasonable level of return. This not only supports shareholder investment it also underpins prudential stability, and our debt rating. The level of profit also needs to be considered in relation to the size of our balance sheet which is $850 billion. In fact our profitability in terms of ROE has more than halved over the last 15 years.
“Westpac must also retain its double AA rating. This rating allows the bank to import funding at more reasonable cost from international investors. To lose it would increase the cost of our wholesale funding which would inevitably lead to higher interest rates for our borrowers.”