Value Investor: Westpac's fair weather is on the wane

Provisions for bad debts will inevitably rise in coming years, so Westpac needs to ramp up core earnings to sustain the pace of its dividend growth.

Westpac Banking Corp shareholders are fortunate that interest rates have fallen from the levels of  three to five years ago, as impairments of loans written then are lower than expected. Those borrowing now to speculate on rising property prices will probably face higher interest rates a few years from now. Inevitably, collective provisions will have to normalise and provisions for impaired loans can also be expected to rise. This normalisation will act as a headwind to earnings in coming years.


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