Westpac Banking Corp (ASX: WBC) shares have been out of form this week.
As things stand, the banking giant's shares are on course to record a decline of 1.5% for the period.
This stretches its year-to-date decline to a disappointing 13%.
Why are Westpac shares in the news this week?
Investors have been shunning Westpac and other ASX bank shares this week after the Reserve Bank of Australia elected to increase the cash rate on Tuesday. This took the cash rate to 4.1%, which is the highest level we have seen in Australia for over a decade.
Combined with the release of disappointing GDP data, this has sparked fears that a recession is coming. This could make operating conditions challenge for the big four banks in the near term.
In addition, there are concerns about how rising rates are impacting borrowers and ultimately bad debts.
When increasing interest rates on its home loans this week, Westpac's Chief Executive Consumer and Business Banking, Chris de Bruin, said:
We understand interest rate increases put more pressure on household budgets. The majority of our customers are managing okay, but we know with each rate change it's getting more challenging.
We're reaching out to some customers who may need additional support and have competitive rates available for those rolling off fixed loans to make the change easier. For customers in financial difficulty we are here to help and encourage them to call us early if they're concerned.
Westpac's CEO, Peter King, followed this up by revealing that the bank is receiving significantly more home loan hardship calls as rates rise.
According to the AFR, Mr King told the Australian Banking Association that he has seen "a lot more chats" on the hardship hotline. In addition, early 30-day delinquency rates had started to tick up in the six months to March 31.
One positive is that not all of these are rolling into 90-day delinquencies, according to King. Instead, the bank is seeing "more customers ringing our hardship line to have a chat … it is not turning into actual hardship arrangements at this point." However, with many economists tipping the cash rate to peak close to 5%, it remains to be seen how long this will remain the case.
These are interesting times for ASX banking shares.
