Westpac says it will pay $11 million in compensation to 13,000 customers.

The payouts come in response to a mortgage processing error that led customers to continue making interest-only repayments on their loans, because they were not switched to principal and interest repayments at the end of their interest-only period.

Westpac says it is contacting affected owner-occupier customers to start a remediation process expected to take about 12 months to complete.

The bank says it informed ASIC when the error was identified and would work closely with the regulator to respond to the mistake.

Westpac was keen to note that loans through its subsidiaries — St George, Bank of Melbourne, Bank SA and RAMS — are not affected.

“We want our customers to have confidence that if we get something wrong, we acknowledge it and put it right,” Westpac chief executive of consumer banking George Frazis said.

“We apologise unreservedly for the error and have now automated the switching process to ensure it does not happen again.

“Importantly, customers don't need to do anything. We are contacting customers proactively and will provide compensation to anyone who we believe has been financially disadvantaged.”

Accounting firm Deloitte has been brought in to assess Westpac's approach.

The bank wants customers with queries to call its dedicated line on 1300 132 925.