Westpac (ASX:WBC) share price in focus after raising loan interest rates again

Westpac just decided to increase its interest rate again.

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Key points

  • Westpac is the first major bank to increase its interest rate in 2022
  • Its fixed rate has been increased by up to 0.20% for owner-occupiers and investors
  • Brokers think that the Westpac share price can benefit from rising rates

The Westpac Banking Corp (ASX: WBC) share price is in focus after the big four bank decided to raise its interest rate again.

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

But Westpac has decided to be first move and raise its interest rate first in 2022.

How much has Westpac increased the interest rate?

According to reporting by Ratecity.com.au, Westpac decided to increase its fixed interest rate by up to 0.20%. The increases were for owner-occupiers as well as investors. It apparently includes all of Westpac’s divisions including the Bank of St George, Bank of Melbourne and BankSA.

Different time periods of loan lengths saw different increases.

The one-year fixed rate saw an increase of 5 basis points from 2.34% to 2.39%, the two-year fixed rate saw an increase of 10 basis points from 2.49% to 2.59%, the three-year fixed rate rose by 15 basis points to 3.04%, the four-year fixed rate increased 15 basis points to 3.34% and the five-year fixed rate went up 20 basis points to 3.59%.

Why did the interest rate increase?

Ratecity explained that Westpac decided to increase the interest rate because of the rising cost of fixed rate funding and expectations that the Federal Reserve in the United States is going to increase interest rates “faster and more aggressively” than previously thought.

The financial site is expecting many more lenders to increase interest rates this year.

Ratecity’s Research director, Sally Tindall, said:

Westpac is the first big four bank to hike fixed rates in 2022 but certainly won’t be the last.

The cost of fixed-term funding is rising with inflation in the US hitting its fastest pace in nearly four decades.

We expect other banks to follow within days on the back of sharp increases to the cost of wholesale funding.     

Mortgage holders who were fortunate enough to lock in a record-low fixed rate over the last couple of years are immune to these hikes, but only for the duration of their fixed rate term.

Anyone who fixed at the start of the pandemic for two years should start thinking about what their next step might be. When they come off their fixed rate, they’ll be looking at a very different market.

What could this mean for the Westpac net interest margin (NIM)?

When Westpac released its FY21 result, it said that its margins were being challenged in a competitive, low-rate environment.

Margins were being pushed lower to attract and retain customers. It was also being impacted by the portfolio mix – with more people choosing the lower-costing fixed rate loans.

In terms of the outlook, given in November 2021, it said that loan growth was expected to be sound as the economy rebounds, although net interest margins would be under pressure from the low interest rates and competition.

However, with banks now quickly increasing rates, it will be interesting to see how that plays out with wholesale costs rising too.

Westpac share price rating

One of the latest brokers to have their say on Westpac was Morgan Stanley. It currently rates the bank as a hold/’equal-weight’ with a price target of $22.70. It thinks that higher interest rates could be a positive for Westpac.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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