Westpac wins lucrative contract

Westpac Banking Corporation (ASX: WBC) has retained its lucrative contract to act as the NSW government’s banker, believed to be worth $40 million over five years.

According to The Sydney Morning Herald (SMH), Westpac is eyeing further opportunities to sell banking services to governments after renewing the contract. It’s believed to be the biggest government contract in the country, handling payments to 386,000 public servants and managing revenue collection such as car registration.

Westpac currently holds banking contracts in Victoria, the ACT and New Zealand, with the bank’s institutional boss Rob Whitfield saying it would be actively participating when the Queensland government’s contract went to tender next year. Commonwealth Bank (ASX: CBA) currently holds the Sunshine state’s contract.

Mr Whitfield said that corporate credit growth was extremely benign, and competition for institutional business such as the NSW government was extremely strong. Business credit growth was still going nowhere said Mr Whitfield, making the bank hungrier for all of its customers’ business, regardless of industry.

Retail credit growth has fallen dramatically since the GFC, with the big four banks recording low single digit growth in home loans, despite the official cash rate dropping to 3% and mortgage rates hovering at just over 5%.

Additionally, credit card growth was averaging between 15-20% per year up until 2007, but has dropped to close to zero today and in 2012 actually went backwards. At the same time, bank deposits have exploded, with the big four banks, ANZ Bank (ASX: ANZ), Commonwealth, National Australia (ASX: NAB) and Westpac now using deposits to source around 60% of their funding requirements.

Consumers remain cautious, with concerns over the economy, and a new era of consumer conservatism appears to be in place. One of the benefits of the GFC is that consumers have learnt to spend within their means and excessive debt accumulation has been shunned.

Foolish takeaway

With consumer and corporate credit growth in the doldrums, expect the banks to compete more intensely for institutional business.

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