Westpac share price tumbles 5% on Wednesday

The big four bank is the financial sector’s worst performer today.

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Key points

  • The Westpac share price is plummeting on Wednesday amid news the bank made the first move in passing yesterday's rate hike onto home loan customers
  • Morgan Stanley has flagged higher de-rating risks following the RBA's rate increase
  • The big four banks have been tipped to face pressure to pass the rate hike onto savings deposits, with the Federal Treasurer saying he believes they should do so

The Westpac Banking Corp (ASX: WBC) share price is suffering, sliding 5.25% lower at midday.

It comes as the bank is the first of the big four to pass the Reserve Bank of Australia’s interest rate hike onto home loan customers. And while higher interest rates are generally good for banks’ margins, their long-term impact might not be pretty.

At the time of writing, the Westpac share price is trading at a three-month low of $22.18, 5.25% lower than its previous close.

For context, the S&P/ASX 200 Index (ASX: XJO) is recording a 0.76% gain.

Let’s look at what might be going on with the Westpac share price today.

Westpac share price tumbles on Wednesday

The Westpac share price is suffering alongside the S&P/ASX 200 Financials Index (ASX: XFJ) today.

The sector is currently down 2%, with Westpac coming in as its biggest weight. The other big four banks are also struggling, each slipping between 2.3% and 3.7%.

Of course, rising rates allow banks to reprice their loan offerings, bolstering net interest margins (NIMs). However, Morgan Stanley is wary of long-term detriment. It believes the move will slow housing loan growth while inflation pressures costs.  

“We believe the near-term earnings outlook remains sound, but the risk of a trading multiple de-rating has risen,” Morgan Stanley head of Australian research Richard Wiles said, as quoted by the Australian Financial Review.

Westpac might also be front of mind on Wednesday after it was the first to pass on the full rate hike to its home loan customers. It hasn’t moved on its savings accounts yet, however, from tomorrow Westpac will offer a 12-month term deposit with a 2.25% interest rate – 2% higher than its current 12-month term deposit rate.

“We expect the other big banks to follow Westpac’s lead and also pass on the RBA rate hike in full to their mortgage customers,” RateCity.com.au research director Sally Tindall said. She continued:

Many banks remain unwilling to substantially hike their savings rates until Australians start burning through some of the record amount of cash they’ve got stashed away.

However, Federal Treasurer Jim Chalmers told 3AW this morning he believes the banks should pass the hike onto savings deposits. The Treasurer said the Australian public will be “watching them like hawks” in wait.

The Westpac share price is currently 3.9% higher than it was at the start of 2022. Though, it’s 17% lower than it was this time last year.

Motley Fool contributor Brooke Cooper 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 Scott Phillips.

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