AN EXPOSURE of $60 billion to commercial property was regarded as a worry for Westpac just a few months ago, but early signs of a recovery in the hard-hit sector mean it could now work to the bank's advantage.
A rush of commercial property deals, including yesterday's $297 million sale by Macquarie Group of its property management arm to Charter Hall, combined with more than $12 billion of equity raised by the sector, has started to rekindle banks' interest in the commercial property sector.
At the end of September, Westpac's commercial property book was valued at more than $60 billion, or nearly 11 per cent of total lending. This gave it the second-biggest book behind National Australia Bank, but Westpac had taken a more conservative stance than its rivals on provisioning for commercial property.
Some believe this conservatism could give Westpac an earnings boost. ''Westpac's provisioning assumed a material decrease in commercial property prices across sectors and across the country - that did not eventuate to the extent that Westpac had anticipated,'' said EL & C Baillieu Stockbroking analyst Stewart Oldfield.
Westpac will update investors on its first-quarter results on Tuesday. Leading into the update, investors have been buoyed by Commonwealth Bank this week reporting a 54 per cent jump in first-half profit to $2.94 billion.
Indeed, key players in the commercial property sector have said property valuations are showing signs of recovery from the sharp slump of the past 18 months. At the same time, banks are starting to reopen funding lines for transactions.
''I think the Australian market for long-life, good-quality assets has generally bottomed,'' Charter Hall joint managing director David Harrison said yesterday.
Separately, Westpac will formally fold its recently acquired St George Bank business into its own balance sheet from next month, after approval from the Treasurer for the finance giant to operate under a single bank licence.
A single banking structure for Westpac and St George was one of the conditions of the banks' $17 billion merger.
This means Westpac will take responsibility for all St George's loans and deposits. Westpac will continue to report St George as a stand-alone business, but its statistics will no longer be broken out in official monthly data.
Westpac said customers' day-to-day interactions with St George would not be affected.
