Westpac Expects Higher Loan Losses as Iran Conflict Slows Australian Economy — Update

By Stuart Condie

SYDNEY--Westpac expects credit losses to rise as customers of Australia's second-largest bank feel the impact of the Iran conflict on the local economy.

The Sydney-based lender said asset quality had improved through its fiscal first half, which ended March 31, but that it was preparing for an economic slowdown.

Westpac said it expected to make a credit impairment charge equivalent to about 10 basis points of average gross loans when it reports its fiscal first half results in May. That compares with a charge equivalent to 5 basis points across the whole of its last fiscal year.

"With the supply shock from the energy market disruption expected to result in higher inflation and higher interest rates, an expected slowing in economic growth will create a more challenging environment for some customers," Westpac said.

The bank said that it had created a new portfolio overlay for energy intensive sectors, which have been hit by surging costs since the U.S. and Israel attacked Iran six weeks ago.

Westpac's asset quality had been improving.

In November, it reported a A$424 million credit impairment charge for the 12 months through September. The charge represented 5 basis points of average gross loans, down from 7 basis points a year earlier.

On Tuesday, it said that asset-quality metrics had further improved over the subsequent six months. Its top-tier capital ratio was stronger in the March quarter than in the December quarter, it added.

Lending grew 4% and deposits grew 3% over the six months through March, it said. Expenses declined 2% over the same period, once credit impairments and restructuring charges were stripped out.

Core net-interest margin, a key measure indicating the profitability of lending activity, was stable in the March quarter.

So far, Westpac has seen interest-rate volatility weighing on its Treasury and Markets division. Net interest margin from the unit contributed 7 basis points in the March quarter, compared with 15 basis points three months earlier.

Write to Stuart Condie at stuart.condie@wsj.com

(END) Dow Jones Newswires

April 13, 2026 19:25 ET (23:25 GMT)