But Westpac’s car loans that are more than 90 days in arrears have more than doubled from 1 percentage point to 2.4 percentage points of outstanding loans.
Dividend payout ratios
Westpac is the only bank that discloses car-loan arrears and the 2.4 percentage points is substantially higher than the overall 0.9 percentage-point arrears rate that Fitch Ratings Dinkum ABS Index reports. The Fitch index tracks arrears in securitised loans across several lenders, including Macquarie and Volkswagen Financial Services.
The Deutsche analysts suspect this difference in reported performance may be to ensure data in the public domain illustrates a better loan performance.
A deterioration in car-loan risk, even to historically normal levels, could materially affect Westpac’s profits, they say. “Should bad debts in the consumer loan book revert to risk tendency [an estimate of bad debts through a full economic cycle], then 9 per cent of cash [net profit after tax] is at risk,” they say.
“Should we see a normal credit cycle, then 23 per cent of cash NPAT is at risk.”
The potential for higher consumer loan arrears to erode profits is “further evidence that dividend payout ratios are too high”, Deutsche Bank says.
The amount of outstanding automotive debt is not known, but Deutsche analysts say it is not trivial. Total consumer debt in Australia is $148 billion, of which $52 billion is credit cards, so some proportion of the remaining $98 billion relates to auto loans.
A further $15.6 billion of consumer and equipment loans are securitised, of which a certain proportion relate to car loans. About $61 billion has been extended by the major banks in the form of mortgage lines of credit, where the Deutsche Bank analysts believe much of the car lending takes place.