Westpac put lenders buy now, pay later on its list of “sensitive” sectors

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Westpac chief executive Catherine McGrath says the bank has set emissions reduction targets for 2030.

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Westpac chief executive Catherine McGrath says the bank has set emissions reduction targets for 2030.

Westpac is raising the limit on its interest-free loans for homeowners from $10,000 to $40,000 to make their homes more energy efficient.

At the same time, the bank has added buy-now, pay-later lending to the list of “sensitive” sectors, it will be cautious about banking.

The moves come in a series of social and climate measures announced by Westpac chief Catherine McGrath.

Since late 2020, Westpac has refused to transfer payday lenders, but has now released a list of sensitive sectors where lenders buy now pay later (BNPL) rank alongside subordinate lenders, oil and gas exploration companies and loggers.

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These are sectors that Westpac says are ready to bank but need to work to improve ethical business practices.

Firms in the sectors would face stricter scrutiny to be allowed to bank with Westpac and face de-banking if they failed to comply with regulations applicable to them.

BNPL is a form of short-term, interest-free lending that Trade and Consumers Secretary David Clark is considering how to regulate after revelations that vulnerable borrowers can take out multiple BNPL loans without having to undergo an affordability test.

Buy now, pay later (BNPL) loans have become a habit, a government survey shows. Many people are caught in a cycle of BNPL-driven consumerism. It has another dark side. Some people buy necessities like meat and medicines from BNPL.

Earlier this month there was a public outcry after it was revealed people could use BNPL loans to buy alcohol.

McGrath said Westpac’s list of sensitive sectors was released to show customers what the bank is concerned about and what it is monitoring.

She said buying now, pay later is a form of debt, but many shoppers tend not to see it that way.

“What I think is incredibly important is that whenever someone borrows, it’s both well rated and regulated,” she said.

Westpac also released a list of sectors it would not lend to, including payday lenders, mobile merchants and coal miners.

Westpac’s banned list also included companies involved in commercial whaling, shark finning and nuclear weapons, except under government-controlled programs with NATO countries authorized under the NPT.

The bank also pledged to align its operations towards a zero-emissions future by joining the United Nations’ Net-Zero Banking Alliance.

McGrath said Westpac is committed to a net-zero loan portfolio by 2050.

The bank waited until it had solid plans for working with specific sectors before making the commitment, she said.

“There are already very concrete actions that are underway,” she said.

Coal mining is on Westpac's Prohibited List, as is commercial whaling.

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Coal mining is on Westpac’s Prohibited List, as is commercial whaling.

The bank has already lent more than $30 million interest-free through its warm-up loans and is targeting $100 million, she said.

The loans could be used to fund insulation, installation of heat pumps, double glazing, ventilation, efficient wood-burning stoves, solar power and batteries, but have now been expanded to include the installation of electric vehicle chargers.

The Westpac Warm-Up Loans are available for the installation of EV chargers.

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The Westpac Warm-Up Loans are available for the installation of EV chargers.

The bank is also testing a sustainable financing loan for farmers.

These would require borrowers to meet all parts of the Sustainable Agriculture Finance Initiative guidelines, which include environmental, emissions and labor standards.

The farm loan was trialled with a small group of farmers, McGrath said. Borrowers would be rewarded with cheaper loans if they met the targets within a two-year period.

The loans would be rolled out more widely next year, McGrath said.

The increased warm-up loan limit would go into effect on August 4th.

McGrath said the bank’s next focus will be working closely with large corporate clients looking to access credit to determine how they are managing climate-related risks and what they are doing to decarbonize.

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