Sat. May 21st, 2022

Man with various Australian dollar bills.

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Key points

  • Westpac is the first major bank to raise interest rates in 2022
  • Its fixed interest rate has been increased by up to 0.20% for owners and investors
  • Brokers believe the Westpac stock could benefit from rising prices

That Westpac Banking Corp (ASX: WBC) stock price is in focus after the four major banks decided to raise interest rates again.

Westpac and its other great peers – Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) – has been rising interest rates.

But Westpac has decided to be the first move and raise its interest rates only in 2022.

How much has Westpac raised interest rates?

According to a report by Ratecity.com.au, Westpac decided to raise its fixed interest rate by up to 0.20%. The increases were for both owners and investors. It apparently covers all of Westpac’s divisions, including the Bank of St George, the Bank of Melbourne and BankSA.

Different periods of loan lengths experienced different increases.

The one-year fixed interest rate increased by 5 basis points from 2.34% to 2.39%, the two-year fixed interest rate increased by 10 basis points from 2.49% to 2.59%, the three-year fixed interest rate increased by 15 basis points to 3, 04%, the four-year fixed rate rose 15 basis points to 3.34% and the five-year fixed rate rose 20 basis points to 3.59%.

Why did interest rates rise?

Ratecity explained that Westpac decided to raise interest rates due to the rising cost of fixed-rate financing and expectations that the US Federal Reserve will raise interest rates “faster and more aggressively” than previously thought.

The financial side expects many more lenders to raise interest rates this year.

Ratecity’s research director, Sally Tindall, said:

Westpac is the first major four bank to raise fixed interest rates in 2022, but will certainly not be the last.

The cost of time-limited financing is rising with inflation in the United States hitting the fastest pace in nearly four decades.

We expect other banks to follow suit within a few days due to sharp increases in the price of wholesale financing.

Mortgage holders who were fortunate enough to maintain a record low fixed interest rate over the last few years are immune to these increases, but only during their fixed interest period.

Anyone who fixed on the onset of the pandemic for two years should start thinking about what their next move might be. When they disappear from their fixed interest rate, they will look at a very different market.

What could this mean for the Westpac Net Interest Margin (NIM)?

When Westpac announced its FY21 result, it said its margins were being challenged in a competitive low-cost environment.

Margins were pushed down to attract and retain customers. It was also affected by the portfolio composition – with more people choosing the cheaper fixed-rate loans.

As for the outlook given in November 2021, it said lending growth was expected to be healthy when the economy returned, although net interest margins would be under pressure from low interest rates and competition.

But with banks now rapidly raising prices, it will be interesting to see how it plays out when wholesale costs also rise.

Westpac stock price rating

One of the latest brokers to say their opinion on Westpac was Morgan Stanley. It currently rates the bank as a team / ‘equilibrium’ with a price target of $ 22.70. It believes that higher interest rates could be positive for Westpac.

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