Westpac Banking Corp (ASX: WBC) only recently decided to increase its variable interest rate, now it is making things even tougher for borrowers.
Westpac, along with Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), have all been put under the spotlight in the Royal Commission.
It is only now, after Australian households have reached record debt levels, that the banks are suddenly deciding too much debt may not be so good.
One of the changes is that Westpac wants to see Afterpay Touch Group Ltd (ASX: APT) screenshots. I think this is a good move. Although Afterpay isn't technically interest-incurring debt, it is a liability that needs repaying.
A limit of $100,000 is now in place for mortgage insured loan money used for something other than a property, such as buying a boat for example.
Recent changes also include disclosure of all debts and declarations about rental payments, child support, property utilities, rates and so on. I was very surprised that all of these aspects weren't already covered in Westpac's lending. I wouldn't lend hundreds of thousands of dollars to someone without know their full financial picture.
I fully agree with the bank moves to tighten lending requirements. Eventually loose lending criteria will end in pain. But, I think that these policies should have existed all along, not after the horse has bolted. It's not good for a household, or country as whole, for so much of a budget to be paying off debt.
Foolish takeaway
Westpac is currently trading at just over 11x FY19's estimated earnings with a grossed-up dividend yield of 9.6%. This yield looks very attractive, it certainly is compared to the interest rates offered by Westpac's savings accounts. However, the yield is unlikely to grow fast at all – it may fall if there is a serious downturn. I'd only want to buy bank shares at the bottom of a cycle.
