Analysts were disappointed by Westpac's bad debt charge increasing to 21 basis points, up from only 13 points in the second half of 2015. Pointing to mortgage and personal loan delinquencies as the problem, Westpac also expects bad consumer loans to rise in the second half due to housing activity easing and tighter credit standards.

Westpac's assets are comprised of 61 per cent mortgages, 13.3 per cent business loans, 9.6 per cent institutional banking, and 3.7 per cent consumer loans. Its actual mortgage loss rate is two basis points or $35 million, up by $3 million compared to the last half.

Yet Westpac chief executive Brian Hartzer assured investors that the problems are largely contained in areas reliant on the resources industry.

"While there have been a small number of large firms experiencing difficulties during the first half, these have been predominantly due to company-specific issues that have been, in some cases, exacerbated by the mining cycle," he said. "Company balance sheets are generally in good shape—having used lower interest rates to pay down debt—and levels of stress remain low."

Around the country, 90+ days delinquencies including impaired mortgages rose from 45 basis points in the September half to 55 basis points this half. Still, Hartzer believes that other aspects of the Australian economy are encouraging.

"The recent firming of commodity prices, solid employment growth—particularly in the services sectors—and ongoing low interest rates all support that outlook," he said. "We also see signs of moderating housing investment, although housing fundamentals remain in good shape."

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