Westpac has forgone millions of dollars in interest income thanks to an IT glitch that has prevented them from raising interest rates on investment loans.
Australia’s largest lender for investment properties is left unable to increase the interest rate for investment loans without increasing the interest rate for owner occupier loans as well.
This is all due to a decision the bank made in 2005 to point both owner occupier and investor loans to a single reference rate. Westpac’s computer system now will not allow the major to point a second reference rate to investor loans only.
According to a report by the Australian Financial Review, this glitch is now costing the bank around $1 million a day in forgone interest revenue.
It has been a week since ANZ became the first major bank to announce hikes across its standard variable and fixed interest home loan rates for investment properties, which means Westpac has potentially cost itself $7 million already.
However, Hugh Dive, a senior portfolio manager at Aurora Funds Management, which holds Westpac shares has played down the impact when speaking to the AFR.
“Whilst the headline number of $1 million per day sounds impressive, it is less so in the context of a bank that made $7.6 billion for the 2014 financial year. I would think that few institutional shareholders would be overly concerned about this systems issue that I am sure will be fixed as quickly as possible,” he said.
“What is of greater interest is that the banks, including Westpac, are repricing their loan book upwards. In the context of a loan book of $622 billion, changes to Westpac's net interest margin, or even maintaining their NIM as they did in the first half 2015, is of much greater importance to shareholders and bank profitability than $1 million per day in foregone interest income.”
Banking sources also revealed to the AFR that it could take Westpac several months to work through systems issues to enable it to charge different rates, as large banking systems are developed slowly over time with many complexities.
Can you afford to buy in this suburb? Find out how much you can borrow
Top Suburbs :
Get help financing your investment
Do you need help finding the right loan for your investment?
When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.
Just fill in a few details below and we'll then arrange for a local expert Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus, our mortgage broking service is at no cost to you.
We value your privacy and treat all your information seriously - you can check out