No major pain for Westpac if house prices were to lose a quarter of their value

Westpac’s $321 billion loan book would take only a minor impairment hit if house prices were to crash by an unlikely 23% over the next three years, its own scenario modelling has revealed.

Its interim results include a three year portfolio stress test scenario based on “significant reductions in consumer spending and business investment lead to six consecutive quarters of negative GDP growth, resulting in a material increase in unemployment and nationwide falls in property and other asset prices”.

If by year three of this scenario, the unemployment rate was 8.9% with house prices down 23.4%, it would only result in cumulative losses of around $2.1 billion - average losses of $692 million per year or 0.22% if its loan portfolio.

Westpac reported a 0.03% loss on its portfolio in its latest interim results.