* Westpac says repossessions up 10 pct, driven by Qld and WA
* Analyst flags this could be an issue for CBA and ANZ
* Westpac cutting new interest-only loans (Recasts with repossession data, comparisons, quotes)
By Paulina Duran and Jonathan Barrett
SYDNEY, Aug 21 (Reuters) - Rising mortgage delinquencies and repossessions in outback mining towns are starting to bite Australia’s banks, with Westpac Banking Corp the latest to report an increase on Monday.
In a third-quarter update, Australia’s second-biggest bank by market value said repossessions jumped 10 percent mainly due to weak conditions in resource-rich states Queensland and Western Australia, a development likely to worry rivals with greater exposure to such areas.
“This is not yet generating much in loan losses, but if it continues it would be more of an issue for CommBank and ANZ,” CLSA banking analyst Brian Johnson said.
About 17 percent of CBA’s mortgage portfolio is in Western Australia, compared to only 9 percent at Westpac and 10 percent at National Australia Bank Ltd, Johnson said.
Representatives of Commonwealth Bank of Australia (CommBank) and Australia and New Zealand Banking Group Ltd (ANZ) did not immediately respond to requests for comment.
The fortunes of Australia’s “Big Four” banks are closely tied to the performance of the housing market, with the group holding a combined market share of more than 80 percent of the lending market.
The prolonged economic downturn in iron ore-rich Western Australia and parts of Queensland are a growing concern for a sector that is otherwise benefitting from heady market activity in the major cities of Melbourne and Sydney, where prices have doubled since 2009.
Westpac said mortgage arrears increased a modest two basis points across its residential portfolio.
Western Australia was hit by a sharp downturn in mining investment after the boom that ended around 2013. Westpac also cited the impact of Cyclone Debbie for repossessions in its Queensland state operations.
While Westpac’s quarterly update did not provide profit figures, its three main rivals reported strong third-quarter profits.
Westpac said it was on track to limit new interest-only loans to below the 30 percent regulatory cap by September in a measure designed to restrain runaway home prices.
Banks have recently started charging around 50 basis points more for interest-only mortgages compared to home-owner loans that require interest and principal be repaid.
AMP Capital chief economist Shane Oliver said the new measures would place pressure on delinquency rates.
“Often people are on interest-only for a reason,” Oliver said.
ANZ last week reported higher mortgage arrears for its third quarter, while CommBank this month said it was also hit by increased arrears in mining towns and outer metropolitan Perth.
Westpac’s common equity Tier-1 capital ratio was steady at 10 percent at the end of June.
Westpac shares were down 0.53 percent to A$32.04 in the afternoon faring better than the rest of the sector and in line with a broader market fall of 0.65 percent. ($1 = 1.2612 Australian dollars) (Reporting by Paulina Duran and Jonathan Barrett in SYDNEY. Additional reporting by Shashwat Pradhan in Bengaluru; Editing by Stephen Coates)