photo credit: bb_mattWestpac chief executive Gail Kelly is upbeat about the Australian economic outlook but cautions that confidence remains fragile.

The head of the nation’s biggest bank by market value says problems in the economy, including bad debt, still had to be worked through and funding costs for the bank are continuing to rise.

“There’s no question we’re seeing an improved economic environment,” Mrs Kelly said in a presentation for the bank’s third-quarter update on Friday.

“A key factor domestically has been the much improved consumer and business confidence and the stronger than expected economic recovery in China is also welcome.

“Having said all that … we shouldn’t underestimate the size and scale of the shocks we’ve been subject to, and there could be after shocks.”

Mrs Kelly said the bad debt cycle was working its way through the economy and it was still difficult to predict when impairments would peak.

Westpac said impairment charges for the three months to June 30 increased to $865 million from $811 million in the preceding quarter.

“I certainly hope to be in a better position to talk to this at our full year results in November, when we have a few more months under the belt,” Mrs Kelly said.

The commercial sector, particularly smaller businesses that couldn’t access equity or credit markets, was finding it hardest to service debts, she said.

However, consumer bad debt had declined slightly, and Mrs Kelly said consumer spending may underpin the economic recovery.

AAP